Personal Finance 101: Getting Credit Without A Credit Card

Tips and Alternative Solutions to Building Credit

Mark writes in and asks:

I’m 18, and recently applied for a credit card at Citibank. They rejected me on the basis that I have no credit history. I’ve had a savings account at a local bank for nearly my whole life with all of my money in it, and I’ve started budgeting my money for when I go to college in September. So I know how to handle money, and I know all about interest rates and avoiding debt (partly thanks to your blog). Citibank has some of the best credit card deals I could find. But how am I supposed to build credit if I can’t get a credit card in the first place?

pf101Mark actually has several options for building positive credit without his own unsecured credit card. Here are some ways that Mark can build credit in this situation.

Have his parents add his name to their card.

They don’t even have to give him a card, just add his identity as an authorized user on their own card. This will make their card account appear on his credit report and thus he’ll get the benefit of their good management of their card.

Get a secured credit card.

A secured credit card is one where you’ve already paid a certain amount before you get it – say, $250 or $500. Then, each time you use the card, it’s immediately paid out of that money and then you are billed for that amount to replenish the balance. This builds credit, and when you cancel the card, you get the money back.

Make a moderate purchase on a store payment plan.

For example, you could purchase a piece of furniture at a furniture store or an electronic item at an electronics store. Sign up for their payment plan; it’s basically a form of credit. If you have a purchase you’re planning in the near future and already have the cash to pay for it, this is a route worth considering.

Get your student loans.

If you’re 18 and planning on going to college, student loans are likely in your future. Your parents may have to cosign on them, but they’ll be in your name and be a very good source of credit.

All of these options will put you in good shape for the future. One tip: when you start to build credit, you will be inundated with all kinds of offers. Forget them and shred them. If someone sends you an offer in the mail, there’s likely a better one out there that isn’t wasting marketing money on direct mail campaigns.

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  1. Maura says:

    Great article! How might this work when the person is too old to get on their parent’s credit? For example, I have great credit, and my boyfriend has terrible credit (he’s working on repairing it). If I added him to my credit card in name as suggested above, how would that affect each of our credit ratings? Does it dilute mine? Is it worse to have 2 people with mediocre credit versus one with good, one with bad? Looking toward purchasing a house in the next couple years…

  2. Erin says:

    If he can wait until September, he can take advantage of one of the credit card offers available on campus. As long as he continues to manage his money wisely and avoids the cards with annual fees, the “student” cards aren’t a bad deal. Once you graduate, they instantly become “regular” cards. I’m sure Citibank will be one of the issuers setting up a booth on campus.

    I still have one of the cards I got in college, 14 years ago.

    My first credit card, though, was a store credit card. They seem to be easier to get, even though you can’t use them in as many places. It had a very low limit, but it was all I needed to get started.

  3. Jeremy says:

    FICO is doing away with the authorized user loophole FWIW. You can still become an authorized user, but from what I’ve read it will no longer establish credit for the user.

  4. Erin says:

    Also, FICO is removing authorized user accounts from its credit score calculations because of abuse, so that option won’t help him build credit anymore.

  5. deb says:

    I had the same problem as a student a few years ago, and I was already an authorized user on my parents’ card – that only showed up on 1 out of the 3 credit reports I looked at.

    If your bank doesn’t offer student credit cards, open an account with one that does. I applied for a big bank student credit card online and was rejected. A week later, I walked into a local branch, sat down with one of the bankers, opened a free student checking acct with $100, and took care of the credit app. A month later, I had a credit card and closed the checking acct.

    With regard to store credit, I was unable to get one of those until I already had a credit card.

  6. !wanda says:

    Yes, when you step on campus, you will be inundated with offers from commercial lenders. Some of them will be gimmicky, but you might like the gimmicks. Also, many colleges have credit unions, and they will almost certainly issue you a card if you’re a student there.

  7. Eric says:

    Just speaking from personal experience, do NOT go out and buy an engagement ring for your highschool sweetheart on credit. :) My first $500 of credit was only worth $50 at the pawn shop 6 years later heheh.

  8. Javi0084 says:

    What about getting a small loan with a co-signer, would that help?

  9. Punny Money says:

    I’ve found that it’s easy getting a Visa or MasterCard branded gas station credit card even when you have no credit history. Such a card was my first; now I’m up to over 30! (Not for going-into-debt purposes, of course.)

  10. Seth Miller says:

    Does canceling a secured card after acquiring a regular credit card hurt my credit score?

  11. SJean says:

    You should be able to get a credit card with no credit (not bad credit though), just maybe not that particular one. I got a basic Discover with no credit years ago. My boyfriend recently got a chase freedom visa with no credit.

  12. Bill K says:

    I didn’t realize that the Authorized User thing would help, I was an AU on my parents account for years, but I ran into the same problem as Mark when I went to get my first card.

    I had to have my father co-sign with me on a Credit Union one, and then later on I was able to get my own.

  13. Moneymonk says:

    Trust me once he start college he will have no problem getting a card. Why do he need a card now?

  14. js says:

    I don’t think I got my first credit card until I was 26 or so. I mean I had a professional job and was on my own long before that, but I just had an instinctive revulsion to credit from my financially wary parents I guess. At any rate I’ve never had any debt.

  15. Tim says:

    The most obvious way to get a credit card is to go through his existing bank. He has had a long term relationship with his bank, and if he has had a good credit history with them (i.e. no bounced checks or overdrafts), he will get a credit card from them without a problem.

    i understand that he wants a citi card to take benefit of the promos, but he may be looking the wrong way. Since he is a student, citi does have cards they market for students. i echo !Wanda, in that once he’s on campus, he will get inundated with all the credit card applications that exists to man.

  16. Sabrina's Money Matters says:

    This would also be a great time for him to register with the Opt Out PreScreened cards…that way once he starts college, because he WILL be inundated with offers, he won’t have to worry about the temptation to get more and more cards because they won’t come, additionally he’ll avoid the soft pulls that account for points loss on his credit score.

  17. Sabrina's Money Matters says:

    I covered this exact issue myself and there is a link there to go to the Opt Out site…“Pre-Screened Offers” are so tricky!

  18. J.T. says:

    Soft pulls do not affect credit score. While there are good reasons to opt out of prescreened cards, that is not one of them.

  19. Ben says:

    If they are getting rid of the authorized user thing, then this is a worthless thought, but I figured I’d share it.

    My parents put me on of their cards, and it helped me build up credit well, and fast. I had around a 730 for a long time. Now that I have added some of own debt (housing, etc.) I got denied for a 1200 loan, and realized that on my credit report was my parent’s AmEx balance of 20K+!!!

    If you use an authorized user to help out, make sure you get off of their account once you are settled. I was on that account for probably 6 years and until it got in the way of my debt to income ratio, I didn’t realize I was still on it!

  20. Chris S says:

    I would suggest applying for a student credit card before you try and tag along on your parent’s credit.

    I was in this same situation when I was 18. I had a savings account since I was 12 and got rejected the first time I applied for a credit card (I’m sure for the same reason). A few days later I applied for a student credit card with another bank and got accepted. My credit limit was only $1,000 at first, but that was enough. It’s 8 years later and I still have that card. Anyways, there are my 2 cents.

  21. Robin says:

    Putting someone as an authorized user on an account doesn’t help nearly as much as putting them on as a co-“owner”. I can’t recall the exact word, but basically, the one that means that they are equally responsible for the debt. This doesn’t even mean they have to have a card.. If you don’t give the credit company that person’s social security number, they won’t report it to the credit bureau.

    I’m a living example of the sucess of this. My dad’s had me on his credit cards since I was a baby, and now, as a 21 year old college student, I have 2 credit cards with a combined credit limit of $16,000! Both of those are my own personal cards. Don’t worry, I never use more than a $1000 of it, and rarely that much. :)

  22. Golbguru says:

    I can attest to the “get your student loans” part. We have a number of (hundreds of them) international students coming in every fall ~ and all of them have essentially ZERO credit history. Within a few days they are converge to ask the same question – how can we build our credit if we don’t have any credit history to begin with? To all of them I just have one answer – go get a student loan. You don’t really need to get a really big student loan to start on this path; many universities offer a short term “emergency loan” which can be used to pay tuition for the a semester – those are almost never rejected, irrespective of whether the student has credit history or not. The other option is an installment plan to pay your tuition – even that goes on credit history (generally).

    This way they don’t have to piggyback on anyone’s credit – no worries for anyone.

  23. js says:

    It’s all insanity to me. Getting student loans just to build up credit? I mean yes if you need them to pay for college, and especially if you are also in a major where it will easily pay for itself whne you graduate, then by all means get student loans.

    But just to build up credit? I swear, the world has gone crazy.

  24. Golbguru says:

    @ js: In our university, emergency student loans are given at 5% APR for a term of 60 days; and you don’t need to borrow the entire tuition amount. So, it doesn’t hurt to borrow a few hundred dollars and just pay a few dollars in interest to get your credit history going. Not really “student loans” in the traditional sense wherein you really need to think about time to break even.

  25. m360 says:

    I’m not so sure being an authorized user will help someone’s credit. Robin makes a good point, if your SSN isn’t attatched to the card, it has no bearing on his credit. I remember working for a couple credit card co’s. There were times when I added someone’s dog as an AU per their request. You want to tell these people they are @$%&#@ crazy but hey, if it makes them a happy customer.

    He won’t have any problems getting a credit card when he goes to college. I had no credit and got a Citi card before classes started. It had an extremly high % but I made purchases, paid them off, they raised the line of credit from $500 to $1000 within months, then I got a sears card w/$1000 credit line, and so on. I fell into the use your cc’s to live trap when my class schedule made it impossible to find gainful employment and now I couldn’t get one if my life depended on it.

    I would rather not have a card now, and I highly recomend going a different route for building up credit. It’s too much of a temptation no matter how much self control you have. I have lots, it was just too easy to whip out the plastic when I was starving. Taking out a student loan can help a great deal. The first round of loans I took out got paid off during a break I took from college. When I went to apply for something, the guy showed my the credit report and said that loan boosted my credit rating.

    I would recomend going with a real financial institution though. At least check to make sure the emergency loan will actually be reported since it may be considered a ‘private’ loan. I’ve taken out the so-called emergency loans and it was basically a loan from the school until the funds from my loans came in. I bought a car once from a special credit dealer, and even though I had to give them my SSN they didn’t report anything to the credit bureau. It would have been nice if they did, I paid the car off very quick. My point is you need to be careful. If you qualify for subsidized loans, it can really work out in your favor, especially since the govt pays the interest while you are in school. No matter how long you are in school, as long as you take 6 hrs a semester, if you could save that money during that time, you could pay it way down and escape a good deal of interest. It all depends on how you look at it.

  26. Laurel says:

    I got a US Bank college student Visa not very long after I turned 18. It had a $300 credit limit. Now, three and a half years later, I have something like a $8,000 limit, a great credit score, and would likely qualify for the sweet Citibank deals Mark is looking at now. So… Mark is barking up the wrong tree – he’s CAN get a credit card, he’s just not going to get a platinum card with no credit.

    He needs to get what he can get now, keep his balance paid off monthly, build the credit and THEN get the good cards. I think a paid-off credit card is a wiser way to build credit than loans just for the sake of credit; but that may just be my take.

  27. AGLOCOnnected says:

    Ya, being authorized did help a great deal, until September when the rules were changed. Also, as someone already mentioned, apply for a gas card. I can almost guarantee you will get accepted for a gas card via Citi bank, even though they won’t approve you for a regular credit card. Try Citgo, Exxon Mobil, and Shell.

    After making regular payments for a year on the gas cards, your score will increase significantly. Should also be fairly easy to get approved for a college student credit card (assuming you have no credit, and NOT bad credit).

  28. LC says:

    Why do you need/want a credit card?

    Assuming you would pay it in full every month, why not use a debit card? As far as protection, I have gotten calls whenever I made purchases in areas other than my home area and they said they would refund them if they weren’t legit.

    People always told me I needed to get a credit card when I was in college so that when the time came to buy a home I would have enough credit history. This is a bunch of baloney. I an 27, I have never had a credit card of any kind, and I had no problem getting a lower than average mortgage rate because by credit score was OVER 800 despite I had no prior credit cards.

    People say you can’t live life without credit, but that is just not true.

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