Congratulations! You made it through high school and you’re at a major transition time in your life. Whether you are moving on to higher education or getting right to work at a full-time job, you’ll want to make sure you have your finances in line. A new credit card is a useful tool as you start the next phase of your life.
Although some students leave high school having already dipped their toes into the world of credit cards, perhaps already having an authorized user card on a parent’s account, many more are ready to get their first card as they head off to college or into the workforce.
If you haven’t yet started, now is the time to begin building a solid credit history. If you’ve already done that, then it’s the perfect time for you to take the next step and keep increasing your credit score.
Why Credit Is Important
As you graduate from high school and move on with your life, whether you go on to college or technical school, take a gap year, or get your first full-time job, your credit score will become more and more important. Many types of businesses, including banks and landlords, use your credit score to determine how they want to do business with you, if at all.
Having good credit will help you get lower interest rates and better loan terms whenever you need to borrow money. This is true for personal loans, business loans, auto loans and even home loans like mortgages and home equity loans. On the flip side, having bad credit will make the interest rates you are offered higher and may make some companies not want to offer you a loan at all.
In addition to determining the availability of loans and interest rates, many businesses use your credit score to decide how responsible they think you are. This can affect your ability to get approved for an apartment or home lease, an auto lease, or even a new job.
The best way to make sure that you have an excellent chance of approval and will be offered the lowest interest rates is to take care of your credit. Do this by building up your score and keeping it as high as you can.
Limitations From The Credit CARD Act Of 2009
Back in 2009, some changes were made to the way that banks can market to and approve people who are under 21 for credit cards. The most important thing to know is that applicants can only be approved for a new credit card if they can show that they have an independent means of paying their bills.
In effect, this means that you can’t get a credit card on your own unless you are over 21 or have a steady job, even if it’s just part time. This makes a lot of sense, because you shouldn’t be piling up credit card debt if you have no way to pay it back. Unfortunately, it makes it somewhat tougher for high school graduates to build up good credit without assistance.
If You Don’t Have Independent Income, Ask For Help From Others
Since you can’t start building a credit profile on your own before the age of 18, it may be in your best interest to ask for a little bit of help to get started with credit either before you graduate high school or right afterward. There are a couple of options available if you have a friend or family member who is willing to help you out. Before you decide on one of these paths, make sure that everyone involved understands what is being agreed to.
In adding an authorized user card to their account or co-signing for your account application, the other person involved is accepting responsibility for any charges that you put on your card. If, for some reason, you can’t or don’t pay your share of the purchases, that person is ultimately responsible for paying the bill. It’s a big responsibility for both of you, and it shouldn’t be taken lightly.
Get An Authorized User Card
One benefit that almost all credit cards offer is the ability to add an authorized user to an account. The authorized user is given a credit card with their own name on it and they can use it as if it is their credit card account.
The only difference is that instead of a bill coming to the authorized user, it goes to the main account holder. You will need to work something out with whoever agrees to help you with this so that you make sure you are paying your share of the bill each month.
The great part about being an authorized user on someone’s account is that you don’t have to worry about getting approved on your own. That person has already been approved so all they have to do is provide your information to have you added. With most banks, your authorized user card will be reported to the credit bureaus, so having it and making regular charges and payments will help to improve your credit score.
However, negative payment history or high credit utilization on the account will affect your credit negatively, even as an authorized user. In addition to the main account holder needing to trust you, you need to trust them.
Adding an authorized user is often done by parents for their kids when they are still in school. If you don’t already have an authorized user card for one or more of your parents’ accounts, and you have a solid relationship with them, now is a great time to ask if they will add you. You’ll be able to start building your credit as soon as you get it.
Have Someone Co-Sign For Your Card
What if you don’t have a regular paycheck, or your credit score isn’t quite where you need it to be, but you still want to get your own card account? By having a relative or a good friend co-sign your application, you can use their credit history to help you get approved.
A co-signer on your card application is telling the bank that they are willing to back you up financially if you don’t pay your bills. This greatly decreases the credit risk for the bank, so they are much more likely to approve your application. Just make sure you actually pay all of your bills so that person doesn’t regret agreeing to help you.
Many large banks do not offer the option to have a co-signer on a credit card, but if you’re a member of a smaller bank or credit union, this could be a good option.
Secured Credit Cards
If you don’t have someone willing to co-sign your card application or to give you an authorized user card for their account, a secured credit card makes it possible to start building your credit even with no prior history, as long as you have proof of independent income.
It is much easier to get approved for a secured credit card than for a traditional, unsecured credit card because you are actually providing the money that you will be borrowing upfront. Secured credit cards require that you put down a deposit when applying and your credit limit will typically be equal to the amount of that deposit minus any account fees.
You may not be required to have a checking account, a prior credit card or even a credit score so these are a great option for people just starting out. Once you’ve shown that you can pay your bill on time every month, some secured cards will often give you the option to increase your credit limit or transition over to a non-secured card.
By making purchases every month and paying off your bill on time, your secured credit card will give you a base credit history to start from and will help improve your credit score over time. With a mix of application requirements and fees, it’s important to pick the right secured credit card to start off with. Here are a few that we think are worth considering.
The information for the Discover it® Secured, Secured Mastercard® from Capital One®, Citi® Secured Mastercard® and BankAmericard® Secured Credit Card have been collected independently by Forbes. The details for the cards on this page have not been reviewed or provided by the card issuer.
Read More: Best Secured Credit Cards
Student Credit Cards
Student credit cards are exactly what they sound like: Credit cards designed for students. They are often a little easier to get approved for, have low fees and have rewards programs that make sense for people who are still in school.
You will still need to meet at least one of the three following criteria to get approved for one of these cards, but if you do, you can use it to take the next step in building a strong credit history while you are still young. If none of these apply to you, your best best is to take a look at a secured card or an authorized user card, as we discussed above.
- Have a documented steady income
- Have someone to co-sign your card application, if permitted
- Be over the age of 21
All of the cards we have listed have no annual fee, so as long as you pay your bill off in full and on time each month, it won’t cost you anything to have and use one of these cards. The fact that you can earn points or cash back without paying any fees makes these cards a great way to get started with earning rewards for your spending.
The information for the Discover It® Student Cash Back, Discover It® Chrome for Students, Journey® Student Credit Card from Capital One®, Bank of America® Travel Rewards Credit Card for Students and Bank of America® Cash Rewards Credit Card for Students have been collected independently by Forbes. The details for the cards on this page have not been reviewed or provided by the card issuer.
Read More: Best Credit Cards for Students
A high credit score can make your life easier and less expensive in many ways, so it’s definitely something that you want to learn to manage. When you are applying for a job, a loan, or even an apartment somewhere down the road, you want to be confident that you’ve built your credit score up so that it helps you instead of harming you.
Moving on to the next phase of your life can be scary. So many unknowns, so much you need to learn about and so many decisions to make. Luckily for you, when it comes to your credit, we are here to help.
Whether you are heading to work or starting another round of schooling, now is the time to start paying attention to your credit and working on building up your credit history, especially if you haven’t previously. Credit cards are an important part of raising your credit score and the cards we’ve outlined above are some of your best bets for getting started.
Best of luck as you make this transition from high school, on to whatever lies ahead for you.