Author Topic: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?  (Read 4235 times)

WilliamArthur

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I am a (currently) unemployed High School Senior in the SOWEGA area. I currently have 2.8K saved up (I want to open up a Vanguard account, but that's another post).

I can currently save 100% of what I make (benefit of starting early), and I plan on taking a part-time job in college. Since it makes sense to stay in-state, my tuition will be paid with the Zell Miller and the balance I can pay for with my part-time.

I want to get started with building credit, but I have no idea where to start. I don't want to be among the prey that lenders seek (ignorant college-aged students), and I have tried researching this on my own, but most FI related post with credit involve travel hacking. The reason I would even want *gasp* credit is that I see (on my path to FI) real estate as a way to supplement my future income, but I would need to finance a rental home.

Can anyone recommend a good credit card to establish my important first line of credit? This is my second post, so please feel free to ask any more questions for pertinent information (and I update up here; I know that haha).

Edit:
My father, with a score of around 750, has added me as an authorized signer. My credit still says nothing.

Link to the Credit CARD Act : http://bit.ly/1SkQOlB\

Perhaps I am in over my head, but I searched the CARD Act and I cannot find anything to verify the idea that authorized signers are unable to receive another's credit if they are under 21. The only issue in getting a credit card is that it wont be issued unless they meet the Application Requirements on page 15 of the Act. These include showing that payments can be made (e.g. with a job), or getting a parent/guardian/spouse to cosign (if they are over 21).
« Last Edit: December 02, 2016, 07:33:16 AM by WilliamArthur »

SeaEhm

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #1 on: December 01, 2016, 07:13:48 PM »
Do your parents have good credit?  Are they able to add you as a user to their credit cards?


Kansas Terri

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #2 on: December 01, 2016, 07:16:39 PM »
If you can get through college without a loan, you will be way ahead of the curve!

ender

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #3 on: December 01, 2016, 07:17:04 PM »
You might have luck going in person to the bank where you have 2.8k saved up and asking to see what options they have.

"I have nearly $3k in the bank and am wondering if you have any credit cards which would help me build credit." will go a long ways with most people.

WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #4 on: December 01, 2016, 07:33:05 PM »
Do your parents have good credit?  Are they able to add you as a user to their credit cards?

Thanks for the reply! My father has decent credit (750ish), and he did add me as an authorized signer to a credit card, but when I opened a checking account (community bank) there was no credit score to report. This may change over time. Again, thank you!

WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #5 on: December 01, 2016, 07:40:10 PM »
You might have luck going in person to the bank where you have 2.8k saved up and asking to see what options they have.

"I have nearly $3k in the bank and am wondering if you have any credit cards which would help me build credit." will go a long ways with most people.

Thanks for the reply! Yes, I have my money saved in a local community bank and when I opened my checking account I did ask about credit. A younger (mid 20's) guy came out to speak with me, and he gave me the ideas of revolving and installment credit, but he did not know about the adding me as an authorized signer to my father's account, so I'm not sure if he gave me the best information. Even more, the lady with whom I opened my account looked around and discretely told me not to get a credit card at their bank, but to "shop around". So, here I am, trying to shop around. Again, thank you very much for the help!

Lkxe

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #6 on: December 01, 2016, 07:51:03 PM »
So I don't remember exactly, but there were changes made in 2010 to credit reporting. ( Credit Card Act) A joint card will garner a credit report but a signer on someone else's card will not. Additionally, a card company can not issue a card to someone who appears to unable to repay ( no job)if they are under 21 without a consigning adult.


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bridget

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #7 on: December 01, 2016, 07:55:37 PM »
At your age, and with no credit, you probably will not qualify for the fun credit cards, like the ones that come with signup bonuses with travel points or really good cash back. The most important thing to do is open a credit card in your own name with no annual fee. Once you do that, put your regular expenses on it (groceries, gas, textbooks) - but just a small amount. An important part of your credit score is the ratio of how much you use.  I've heard it's good to be under 30% of available credit. So, if your credit limit is $1000, try not to use more than $300 of that at one time. When I say put your regular expenses on it, I mean to say those you would otherwise pay with cash (and could afford to pay with cash), so you will always, one hundred percent of the time, pay off the statement balance and never carry a balance month to month. There is a pernicious internet myth that it is good for your credit to carry some balance - this is an outright lie. It just costs you interest and does nothing to boost your credit score. Set up automatic payments so you never accidentally miss the deadline and incur fees, interest, and a potential ding to your credit score.

I'm surprised your credit report didn't reflect you being an authorized user on your dad's card - it's always reflected for me, but it was also in conjunction with my own personal credit. Maybe you need both. But the good thing is that usually being an authorized user means the "age" of your oldest account is actually much longer than you personally have been using it. You can run your own credit check (it doesn't come with a score, but shows your credit history) - use the government portal so you're not also being sold stuff by a for profit company (https://www.ftc.gov/faq/consumer-protection/get-my-free-credit-report). You can do this once per year per bureau, so you can theoretically check your credit every four months if you space the checks out. That way you could double-check whether the AU is showing up on your credit history, and for which reporting bureaus. It's also good in order to keep an eye out for potential identity theft.

kpd905

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #8 on: December 01, 2016, 07:57:13 PM »
You will probably want to start with a secured card that requires you to put some money down at the bank.  Use this and pay it off every month and after a year you can probably try for a real card.

Otherwise just try for one of the no annual fee, no frills cards from one of the banks.  Maybe the Discover It.
« Last Edit: December 01, 2016, 08:11:46 PM by kpd905 »

katscratch

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #9 on: December 01, 2016, 08:04:15 PM »
Do you have a credit union in your area?  My credit union required me to be a joint account holder on my son's checking and savings accounts before he was 18, but now that he is of age he's also eligible for their credit card since he's a member in good standing. 

WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #10 on: December 01, 2016, 08:10:27 PM »
At your age, and with no credit, you probably will not qualify for the fun credit cards, like the ones that come with signup bonuses with travel points or really good cash back. The most important thing to do is open a credit card in your own name with no annual fee. Once you do that, put your regular expenses on it (groceries, gas, textbooks) - but just a small amount. An important part of your credit score is the ratio of how much you use.  I've heard it's good to be under 30% of available credit. So, if your credit limit is $1000, try not to use more than $300 of that at one time. When I say put your regular expenses on it, I mean to say those you would otherwise pay with cash (and could afford to pay with cash), so you will always, one hundred percent of the time, pay off the statement balance and never carry a balance month to month. There is a pernicious internet myth that it is good for your credit to carry some balance - this is an outright lie. It just costs you interest and does nothing to boost your credit score. Set up automatic payments so you never accidentally miss the deadline and incur fees, interest, and a potential ding to your credit score.



Wow Bridget, thank you for this reply; it makes sense. This is a great plan to start. Especially the no annual fee and 30% rule of thumb. Thanks for the answer!

WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #11 on: December 01, 2016, 08:13:58 PM »
So I don't remember exactly, but there were changes made in 2010 to credit reporting. ( Credit Card Act).

Lkxe, thank you for bringing up the CARD Act, I will review it and look for any statements on authorized users. I will try to report back with sources tomorrow.

WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #12 on: December 01, 2016, 08:15:11 PM »
You will probably want to start with a secured card that requires you to put some money down at the bank.  Use this and pay it off every month and after a year you can probably try for a real card.
Otherwise just try for one of the no annual fee, no frills cards from one of the banks.  Maybe the Discover It.
KPD, I'll look into this, thank you!

letired

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #13 on: December 01, 2016, 08:21:18 PM »
It might be worth it to apply for a 'regular' credit card to start, but if you literally have a blank credit history, you will probably get turned down. It also might take a month (or so) for your father's credit to show up on your history (assuming it's the 'right' kind of add, no idea the details on this one!). You will almost certainly be successful with a secured card. As iterated above, the key for any card is no annual fee. Also key is to pay the statement balance in full every month! If you are concerned about managing your spending, only take it out once a month to buy a gallon of milk or something. After a 6 months to year of that, you can try for an unsecured card again, or continue increasing the credit limit of your secured card (by giving them more money).

MrsPete

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #14 on: December 01, 2016, 08:41:10 PM »
I want to get started with building credit
The goal should be to build financial stability.  That isn't the same thing as credit. 

index

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #15 on: December 01, 2016, 09:33:23 PM »
It honestly doesn't matter if you apply for a card now or not. My wife has no credit accounts upon graduating college but applied for an AMEX a couple months after getting her first job at 23. I had a credit card since 17. Just applied and they have it to me (marathon MasterCard). Added two more cards in college, never carried a balance. We bought it first house at 26. My wife with 3 years of credit had a score of 800. I had a 770 with 9 years of payment history.

Banks care a lot more about income now than credit score anyway for mortgages. Get a job making 50k, save for a dish payment, and avoid student loans. Buy a duplex and live in half of it when you graduate and you will be set up for a real estate future.

ysette9

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #16 on: December 01, 2016, 09:46:58 PM »
My first credit card had a limit of only $500 bucks. I used it for a couple of years and always paid it off. I did some silly things like using too much of my available credit, and once went over so I got dinged with fees, but that was part of my learning process. Being relatively responsible with that card led me to be eligible for a better card a couple of years later. I am still unclear how I ever qualified for it, but USAA gave me a card with a $10k limit when I was working as a summer intern a semester before graduating. That has been my personal credit card ever since, though I subsequently asked them to lower the limit. In short: apply for a card with a low limit, hope to get accepted, and then use it very wisely for the next couple of years. Building credit takes time but you are in this for the long haul so that is okay.

bridget

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #17 on: December 01, 2016, 11:16:29 PM »
I want to get started with building credit
The goal should be to build financial stability.  That isn't the same thing as credit.

No, but building credit isn't necessarily antithetical to financial stability either. It's pretty useful, and lots of people here use it to boost their financial stability. You can't leverage the debt of a low-interest mortgage, travel hack, or use MMM's concept of "springy debt" without it. I don't think that the OP has to spend a ton of time worrying about maximizing her/his score (like another poster said, credit availability will probably come hand-in-hand with an income in the future) but it's not a dumb thing to be thinking ahead about.

aceyou

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #18 on: December 02, 2016, 06:39:05 AM »
Good for you for starting so young.  Good luck and welcome. 

ketchup

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #19 on: December 02, 2016, 08:09:32 AM »
I was either 18 or 19 (no credit at all and only working in the summer) when the credit card offers started flowing in.

I found one (2011, age 20) that had no annual fee and some OK cashback (1% back, 5% rotating categories).  With $1800 in savings at the time, Citibank gave me an $1800 credit limit.  It was a "student" card, although I still have it years later and it doesn't say "student" anymore (not sure how that works).

Two years later (2013, age 22), I applied for a few more (better cashback) cards.  Total limits at that point around $9k.

And last year (2015, age 24) my credit was good enough to buy my second house at 3.625%.

It really doesn't take too much.  You just have to play the game a little, and not be stupid about it.

I had also bought a house in 2012 (age 20) with seller financing, just under 20% down, and no credit involved.  Real estate deals don't always need to involve credit (though it's definitely a tool in the toolkit).

economista

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #20 on: December 02, 2016, 09:19:45 AM »
I don't know if things have changed (it's been 9 years since I was 18) but when I was 18 I opened a discover card that had 0% interest for the first 12 months, and then something like 16% after that, but I didn't plan on ever carrying a balance so the interest rate didn't really matter.  It had 5% cash back on things like gas and groceries though, with intrigued me so I chose it over the other options that were out there.  I really just wanted to establish a credit history.  I tried doing one of those online credit applications for the discover card and it initially told me that they couldn't process my application online, but they would either call me or send me a letter, which I assumed was because I had no credit history.  They called me and asked why I wanted a credit card, what kind of job I had (part time working the desk at a gym), and if I was enrolled in school.  They had a student credit card that they issued for me, that started out with a $200 limit.  I didn't have to have a co-signer or anything like that.  Around 2 years later they increased my limit to $500 and another 2 years later I got an email from them that said the student card was expiring and my account was being transferred to a regular card.  Now every so often they increase the limit and it's up to $16k.  I eventually got a chase united card as well because I was travelling a lot, and I've stayed with just those 2 cards.   I was able to buy a house at 26 and my credit score is 780.

Counting_Down

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #21 on: December 02, 2016, 09:39:11 AM »
At your age, and with no credit, you probably will not qualify for the fun credit cards, like the ones that come with signup bonuses with travel points or really good cash back. The most important thing to do is open a credit card in your own name with no annual fee. Once you do that, put your regular expenses on it (groceries, gas, textbooks) - but just a small amount. An important part of your credit score is the ratio of how much you use.  I've heard it's good to be under 30% of available credit. So, if your credit limit is $1000, try not to use more than $300 of that at one time. When I say put your regular expenses on it, I mean to say those you would otherwise pay with cash (and could afford to pay with cash), so you will always, one hundred percent of the time, pay off the statement balance and never carry a balance month to month. There is a pernicious internet myth that it is good for your credit to carry some balance - this is an outright lie. It just costs you interest and does nothing to boost your credit score. Set up automatic payments so you never accidentally miss the deadline and incur fees, interest, and a potential ding to your credit score.

I'm surprised your credit report didn't reflect you being an authorized user on your dad's card - it's always reflected for me, but it was also in conjunction with my own personal credit. Maybe you need both. But the good thing is that usually being an authorized user means the "age" of your oldest account is actually much longer than you personally have been using it. You can run your own credit check (it doesn't come with a score, but shows your credit history) - use the government portal so you're not also being sold stuff by a for profit company (https://www.ftc.gov/faq/consumer-protection/get-my-free-credit-report). You can do this once per year per bureau, so you can theoretically check your credit every four months if you space the checks out. That way you could double-check whether the AU is showing up on your credit history, and for which reporting bureaus. It's also good in order to keep an eye out for potential identity theft.

Top notch advice.  A credit card with no annual fee and a low limit will get you started, pay it off every month and don't carry a balance.  If you must do a secured card, that will work too.
  • Keep your usage under 30%.
  • To be clear you can use more, but pay it off before the end of the cycle (statement generated) back down to 30% or less
  • Note, don't pay it off to zero before a statement is generated or for the reporting to the credit bureaus it looks as though you don't use it.  After a statement is generated you have a few weeks to pay it off.  Pay it off before it is due and you won't incur interest.

My own story: Graduated without student loans, got a good paying job. Had resisted getting a credit card through college because I thought credit was silly if I didnt have a job to pay it off with.  Marched into the bank I'd had for a while at 22 and asked for a credit card.  They made a stink about how I had no credit even though I had 5 figures in my savings account with them, and had good stable income.  Ended up with a college student card (even though I'd graduated their files still showed me as a student) - no fees, no perks, $1k limit.  Waited 1 yr, asked for a limit increase.  5 years later I no longer use this card as I have built my credit and got a card with a much higher limit that pays rewards.  I have not closed this account though, and use it occasionally for small purchases. 

Your credit score is based in part on the length you've had credit so it hurts to close your oldest account, and you're in a good place starting early as long as you don't ever carry a balance and pay interest.  Check into getting added as an authorized user (not sure if that's different from the "authorized signer" you did with your dad) with your parents cc - something I did that helped.  Not sure why it didn't show up, but could take a few months to show on your credit report.Shows my credit history as starting back nearly when I was born.  But, get something you control as well, and be prepared to ask to be removed from your dad's card if necessary.  Because, with you being tied to your dad's credit, his choices impact your score.  Like if he regularly uses more than 30% of his line, or ever misses a payment.

Check this yearly - looks hokey but is Gov't (can only check for free 1x every 12 mos) to see how things are being reported and if something on there looks like it isn't you.  A pain to change, but better to do when  you don't have a need (like applying for a mortgage). https://www.annualcreditreport.com/index.action

MrsPete

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #22 on: December 02, 2016, 10:13:05 AM »
No, but building credit isn't necessarily antithetical to financial stability either.
I totally agree, but I think a large number of people mistake good credit for financial stability; that's what I was warning against.

galliver

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #23 on: December 02, 2016, 10:48:36 AM »
My dad added me to one of his accounts/cards when I was 21 (with STRICT orders to pay it off in full, in time, every month or else), then 6 mos to 1 year later (in grad school) I got a Discover Student card (I think it's Discover It Student now). I got a pretty high limit and pretty low interest right off the bat so I think dad's credit helped. I second waiting a few weeks/months to see if your dad's account shows up.

Because it can't be reiterated enough: ALWAYS pay in full. ALWAYS pay on time. The people who get in trouble seem to mostly be those who see credit as free extra money and don't worry about paying it back.

I'm actually torn on whether I wish I got a cc in college. My income was at times irregular and I wonder if the temptation to spend in anticipation of future income would have been too much... (I worked in tutoring and research on campus, no hours during breaks and sometimes week before & after).

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WilliamArthur

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Re: Case Study: I'm a 18y/o HS Senior. Where do I get started with Credit?
« Reply #24 on: December 02, 2016, 01:26:32 PM »
Aceyou, economista, galiver- Thank you for the replies, they will definitely be factored into my final decision.

MrsPete, thank you for the warning. I understand that these are different goals (not to be confused for each other), and that one can help the other.

Counting_down, thank you for your story and addressing the oldest line of credit issue. I will have that conversation with my father to ensure a mutually beneficial outcome.

Ketchup, I would love to hear more of your story. I have some questions, but they are not in the spirit of this forum post.

Again, Thank you, everyone who posted! All that is left is to take this good advice and apply it. I'm always open for more discussion.