May 24 2010

No Credit Cards Under 21? You Can Still Build Credit

Posted by Simon Zhen in Credit, Credit Cards
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So the Credit CARD Act of 2009 has put a lid on credit card access for anyone under 21 years old. Luckily, there is a tiny crack in the seal that can still help build good credit history for young adults.

According to the new rules, you can get a credit card under 21 only if you:

have an adult (of 21 years of age) to co-sign the credit card agreement.
or, can demonstrate the ability to repay the balance.

Now, it may seem like the end of the world when a parent refuses to co-sign for a credit card while it seems impossible to find a job that would prove you can sustain credit card debt.

Obviously, they know that the credit card is an evil they don’t want to be left responsible for. But, that doesn’t mean there aren’t options that they’d be willing to co-sign.

Student Loans
The cost of a college education is only going to go up and it is highly unlikely an 18-year-old has the money to pay for all of it on their own without help from parents, scholarships, and… student loans.

While a student loan would probably still require a co-signer, parents are more comfortable with co-signing because it is used to pay for an education as opposed to discretionary spending. On top of that, the interest rates are lower than credit cards and most student loans (such as Federal Stafford Loans) do not need to be repaid until after graduation.

If you can afford the college education without taking student loans, but would still like to begin building credit at an early age, consider applying for a small federal student loan in the first semester of school, if possible.
Secured Credit Cards
Secured credit cards are the optimal tools for cautious consumers and those rebuilding their credit after financial disasters such as bankruptcy.

While the rules of the new credit card laws do not state any exceptions for secured credit cards, I’m assuming that they still apply. With money in a collateral account that ensures you’d have money to repay the debt, parents are much more likely to co-sign one for you. Or, credit card issuers may be more lenient as to who gets a card.
Monthly Services
Firstly, this is a long shot. A few companies that offer monthly services such as cell phones, cable, or internet services may post monthly payment amounts on your credit report. To find out if they do, simply give them a call and ask or check your credit reports at www.annualcreditreport.com.

Selecting a cell phone company based on whether they report monthly payments to the credit bureaus is not a good idea, nor is signing a cellphone contract just to build credit.

You Don’t HAVE to Build Credit Yet
The new credit card legislation was written to stop young adults from falling prey to consumer debt. If you can’t find a way to build credit, don’t sulk and whine because having a super high credit score is not that big of a deal. Our government is telling us to stop digging ourselves a hole that we spend the rest of our lives trying to climb out of.

Many people have lived with little to no credit. They may have safer loans such as mortgages or car loans but they rarely rely on a credit card – a feat that is quite liberating. Some of you may find that you don’t really need credit as you live some your liveliest years without it.

(Photo credit: vestman)