Understanding the Catch-22 of a Student Credit Card

by : Jon Arnold

It will come as no secret to most people that if you have bad credit, it will make it tougher for you to get a new credit card account approved, simply because you are seen as a higher credit risk, and perhaps higher than a particular lender is willing to see for his customer base.

But having NO credit established is almost as bad. It's not as bad as having proven yourself to not make timely payments or even default on payments, as what typically happens when you have bad credit, but no credit falls into an area where the applicant is still a high risk factor because the creditor has no idea what kind of risk you will be. The interest rate that a lender sets, as well as whether or not they will even approve a new account for someone, is heavily dependent on how they view the applicant as a credit risk.

So where does one start? For the typical college student today who is looking to get a credit card, the "catch-22" is that they do not have credit established so there is no credit history or credit score to judge them by. So they cannot get credit because they have no credit history, and they have no credit history because they cannot get a credit card. As odd as that scenario sounds, that is the situation faced by tens of thousands of college students every year.

But there are ways around this if you are willing to start smaller and get a credit history built up. Although you will clearly not qualify for an American Express card with no credit history, let's explore some of the credit options you do have to get that credit history established.

Many department stores have much more lax credit requirements and although the interest high is usually astronomical, you are not getting the card so you can charge it to the hilt, you are trying to establish a credit history. Remember the goal here and read that last sentence again!

Credit cards with gas stations are also relatively easy to get, since most do not have the highly stringent requirements for a previous credit history. Again, make sure that you charge a little bit each month and pay it off or at least the minimum payment at the end of the month, and be sure to mail the payment so that it reaches them in time to be posted before the due date.

Although many of the major credit card companies won't give you a card without a credit history, some smaller ones will. Department stores are likely candidates. Gas station cards are also easier to get.

If you are a member of a credit union or your university has a credit union you can join, they probably offer a credit card for members. This may even be a secured card, where your credit limit is defined by how much money you put on deposit with them. Even with a secured card, this is an excellent way to build a credit history.

There are multiple options for you. The key to remember is to make timely payments each and every month, and keep your running balance below about 30-35% of your credit limit. With this pattern established, you will have a very good credit history in a short period of time, and be in a position to move up to the big leagues!