Updated: Jan 6
For young adults, one of the more exciting financial milestones is getting your first credit card. Be aware, as excited as you are to get a credit card, the credit card companies may not be as excited to give you one.
In this article, I’ll discuss the following.
The relevant factors that credit card companies consider when reviewing your application
What is considered “good” and “bad” credit
The do’s and don’ts if your application is denied
Do you have a steady income?
If you are under the age of 21, and you don’t have any income you will not be approved for a credit card without a co-signer. Think about it. Would you lend your friend money if you didn’t know if they would pay you back and you knew they had no job? Probably not.
However, you might be able to get a credit card if your parents (or another adult with good credit) will be willing to act as your “consigner”. A consigner is someone who “vouches” for you and agrees to pay your debt if you are unable or unwilling to do so. They are on the hook for whatever you do with the credit card and their credit could be damaged if you use the credit card irresponsibly.
Understand that your consigner is sticking their neck out for you and this makes it more important that you use the credit card responsibly.
If you do have a job that provides you predictable income you have a chance to have your application approved. However, this is only the first of several hurdles you must clear.
If you’ve never had a credit card before, chances are you have little or even no “credit history”. One of the major factors credit card companies look for when deciding whether to approve your application is your credit history and your credit score.
Your credit history is simply a record of how responsibly you have managed credit and paid your bills in the past. If you have never had a credit card, loan or bills in your name you may not have much of credit history.
This can make credit card companies a little uneasy because it is difficult for them to assess if they can trust you to pay them back. Remember, using a credit card means you are borrowing money which then needs to be repaid to the credit card company.
Your “credit score” is just as it sounds. If your credit history was a course at school, your credit score would be the grade you received on the latest exam. The higher your credit score, the better your chances of being approved are.
5 major factors that impact your credit score.
1. Your history of paying bills on time.
2. How far back your credit history goes.
3. The amount of debt you are currently carrying.
4. How much of your credit limits you are currently using.
5. The number of credit inquiries/applications you have made.
Companies like Equifax use these and other factors to determine your credit score. Your credit score can be anywhere between 300–900, with 300 being the worst and 900 being the best.
It’s important to know your credit score BEFORE you apply as it will be a good indicator if you have a chance of being approved. Click here for more information on how to check your credit score.
Here is a general guide on how to interpret your credit score.
300–629 is considered bad credit (probably won’t get approved)
630–689 is considered average credit (it will be tough, but possible to get approved)
690–719 is considered good credit (no problem getting approved based on credit score alone)
720+ is considered excellent credit (no problem getting approved based on credit score alone)
Where to get your first credit card
Now that you understand the basics of how to get approved, the next step will be to figure out which financial institution you will get your credit card from. Have you ever been at a concert or a sporting event and seen people handing out free water bottles if you sign up for their credit card?
Don’t go with them.
These people have one objective, sell as many credit cards as possible. They do not have your best interest at heart.
Instead, the first place you should go is the bank you have your checking account with. Assuming this is a reputable institution (do your homework on this) they will be more rigorous in their recommendations.
Plus, there is a level of familiarity built-in. They know you, and you know them. There are benefits to building a relationship with your bank over the years, it’s how I negotiated my monthly checking account fees down to $0.
If your application is rejected
Ask what factors were holding you back to improve your credit score over the next 3–6 months before applying again.
Consider asking someone to act as your consigner next time or consider asking about a secured credit card.
Apply for a bunch of other cards right away (that will impact your credit score)Ignore your credit report.
If your application is approved
Congratulations! But Don’t celebrate too long. This is where the work begins.
Getting approved for a credit card is one thing. Knowing how to use that credit card as a constructive financial tool and avoiding the pitfalls that millions of people fall into with credit cards is a whole other topic.