If I’m under 21 how do I get a credit card, part 2

In a previous blog, I discussed two options for getting your first credit card.  They were; getting your parents to co-sign for you or become an authorized user on one of your parents’ credit cards.  There are two other option as well.  The options are; apply for a secured card or a retail or gas credit card.

Secured card

A secured card is a real credit card tied to your savings account.  You have a charging limit equal to the amount you deposited in your savings account, which can be as low as a few hundred dollars and as high as several thousand.  You will normally be charged an application fee, an annual fee for the card, and higher interest rates than traditional unsecured credit cards.

You will want to make sure that the credit card issuer reports secured cards to the credit reporting agencies, because some do not and that won’t help you build credit.  Some issuers will eventually convert the secured card to an unsecured card after paying on time for at least one year.  If you decide to get a secured card charge as little as possible, so you won’t be close to your credit limit, which can hurt your credit score.  You just need the card to help build or rebuild credit.

Retail or/and gas credit cards

Retail and gas credit cards are usually offered by a merchant/retailer and have lower credit limits and higher interest rates. They are usually easier to qualify for than a credit card issued by a bank.  These cards are normally reported to the credit reporting agencies.  And, because the credit limits are low, you should use them sparingly and not get too close to the credit limit or it will harm your credit score the same way maxing out a secured card can.

The take away…be careful with secured accounts and keep balances low.  Make sure you choose one that’s reported to the credit bureaus.  Make sure you choose a card issuer that will eventually allow you to convert to an unsecured card. Retail and gas credit cards are a good start.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Getting Credit, Improving Credit, Money & Identity

This post was written by John Ulzheimer