So you're off to college and have made a resolution to take away more than a degree when the time comes. As a student, you might already know that building a good credit record during your college years is almost as important to your financial life as achieving your degree. But how to get there?
The best way for you as a student without your own income to obtain a credit card and start building a credit history is to find a co-signer. The best candidate is probably a parent, but if you happen to have a good friend with a healthy bank balance and credit record, that could also be an option. Why's it so difficult to get a credit card? The Credit Card Accountability, Responsibility and Disclosure Act of 2009 clearly affirms that anyone under the age of 21 must either show clear proof of an independent means of paying all costs incurred through a credit card, or co-sign. Since meeting credit card payments is the privilege of those privileged enough to have a job, most of us will need to start shopping around for a co-signer. But what happens next?
Once you've found someone who loves (and trusts) you enough to co-sign a credit card with you, it's time to shop around again. This time we're shopping for a card that accepts co-signing. It may have been easy for ma or pa to add you as an authorized user on their card, but that's because they have full responsibility for their card. Almost all card issuers allow additional authorized users, and if a family member has an excellent credit score then "piggybacking" on their good score could benefit your credit history. Although this is an easy option, and exceptionally safe if the card owner doesn't actually give you an authorized user card to use, it isn't a long-term solution. Many credit card providers don't report to credit bureaus, and credit bureaus (especially Equifax) will often remove authorized users from a credit score if they find out that the cardholder is not the authorized user's spouse. On the other hand when you co-sign, you both take equal responsibility for the credit card, so credit card activity builds your own credit history. Irresponsible use can also damage your co-signer's record.
There aren't many credit card issuers that allow co-signing. Until you can prove yourself to be creditworthy, you may have to stay away from grown-up credit cards and settle for a secured card or a student credit card without many benefits.
Before you beg, talk or smile someone into co-signing a credit card, you should have one thing straight: Accountability. Making late payments, taking out student loans or blowing "free" money on gadgets, clothes or anything else can ruin your co-signer's credit. If you get heavily into debt, you may be able to declare bankruptcy and get "off the hook" but your co-signer will be stuck with your debt. If you do not feel that you are responsible enough to handle the power to potentially destroy your parent's life (or any other co-signer), you will be better off applying for a secured credit card.
With a secured credit card, you put down a deposit, and can get credit up to the amount you deposit. You can usually get one without a co-signer or proof of income. Although these cards don't come with many (if any) benefits and have high interest rates, they are all you need to build a credit history. Most of them offer regular reporting to all 3 major credit bureaus. Remember to always keep your spending below 20% of your credit limit, and pay back the full amount immediately if possible, but latest by the due date. This will build a good credit record, and save you from high interest payments. Although they almost always charge an annual fee, secured credit cards provide a safer alternative to regular credit cards and have low application requirements.