A student credit card can help you build credit in college. Getting one can be tricky, however.
You may apply for your first student credit card only to be turned down.
The reality is:
You have other options and alternatives.
Understanding the possible reasons for a credit rejection can help you figure out what to do next to start building good credit history.
Reasons Why a Student Can Be Denied for a Credit Card
Credit card issuers have different reasons why they might deny a student a credit card.
If you've been rejected for a card, the first thing you should do is call the credit card company and ask why. The card issuer will have the best answer for why you weren't able to get approved.
With that in mind, there are some general reasons why a student can be denied credit.
1. CARD Act rules
The 2009 CARD Act enforced some new guidelines for credit card approvals.
Specifically, the Act states that you can't get a credit card in your name if you're under 21 unless you can show proof of income.
So, one reason you might be denied for a student credit card is being under 21 and not having enough income of your own that you could use to pay off any purchases you charge.
2. Limited or no credit history
Aside from your income and age, credit card companies also check your credit score when you apply for a student card.
While the minimum credit score required is different for every card issuer, having no credit at all can work against you.
Credit card companies want to see that you have some history of using credit responsibly. No credit history can mean no credit score and that can lead to your student credit card application being rejected.
3. Poor credit history
Poor or bad credit can also keep you from getting approved for a student credit card.
Say you have a small car loan in your name, for example, and you paid late once or twice. Those late payments can do serious damage to your credit score.
Credit card companies might look at your score and late payment history and consider you too much of a risk for a student credit card.
4. Identity theft
You might have a parent who's financially irresponsible, for instance. They open a credit card or a utility bill in your name without telling you.
Then they fall behind on the payments. The late payment history shows up on your credit report, not theirs, since the account is in your name.
Meanwhile, you pay the price. Your credit score takes a hit and you can't legitimately get credit in your name.
5. Too many inquiries for credit
Here's a crash course in credit scores. There are five things that make up your FICO credit score, which is the most widely used scoring system.
Payment history and credit utilization are the most important. Credit utilization means how much of your available credit you're using.
If you're trying to get your credit started with a student card, those two may not matter much. But credit inquiries could stand in the way of getting a card.
Inquiries just means how often you apply for new credit. If you've applied for 5 or 6 credit cards in a short period of time, that can drive down your credit score.
Credit card companies might assume you're desperate to borrow money, or at the very least, you don't know much about how credit scores work. And that could cause them to deny your credit card application.
What to Do When Your Student Credit Card Application Is Denied
The first thing you should do is call the credit card company. This can give you some insight into why you were denied.
Next, ask for a free copy of your credit report.
Legally, you're entitled to a free copy of your report from the credit bureau that furnished the information used in your credit approval decision.
Your credit card company should mail you a letter stating why you were denied and which bureau's information was used.
You can then go online to that credit bureau's website to request your credit report for free.
Once you've gotten your credit report, review it carefully. Look for errors on your credit report, including:
- Misspellings of your name.
- The wrong Social Security number or birth date.
- Addresses that you've never lived at.
- Accounts that don't belong to you.
- Accounts that do belong to you but have an incorrect payment history or balance.
- Inquiries for credit you didn't name.
If you see any errors or inaccuracies, you can dispute them.
To do that, you'd write a letter to the credit bureau that reported the information detailing the error. You can also initiate disputes online, which is faster and easier.
The credit bureau is required to investigate your dispute. If it determines there is an error, they have to remove or correct it.
Should You Apply for a Student Credit Card Again?
There are pros and cons to doing this.
On the pro side, your next credit card application could be approved. On the con side, you could still be denied and you're adding another inquiry to your credit report.
The better option:
Review your credit score and then call the credit card company to ask them to reconsider.
If you can show proof of income the second time around or you've cleaned up credit errors, the credit card company may decide to approve you for a student card.
What if you decide not to reapply?
The good news is, you're not completely shut out of building credit as a student.
How to Build Credit In College
1. Open a secured credit card
Secured credit cards are different from student or traditional credit cards.
With this kind of card, you typically have to give the card issuer a cash deposit. This deposit doubles as your credit limit.
Pros of secured credit cards:
- May be easier to get approved if you limited or poor credit history.
- Some secured cards earn rewards on purchases.
- Can help you build credit history.
Cons of secured credit cards:
- You might have a low credit limit to start.
- Some charge annual fees.
- Your APR may be higher compared to a student or traditional card.
If you're considering a secured credit card, check the minimum deposit requirements first. Then look at the APR and fees.
Rewards are a bonus but if you're interested in earning points or cash back, see if that's a possibility.
2. Become an authorized user
Becoming an authorized user can help you get access to credit without opening a credit card in your name.
This means someone adds you to their credit card. You can make purchases, earn rewards and build credit, but you're not legally responsible for the card balance.
Pros of becoming an authorized user:
- It's an easy way to build credit.
- You don't have to actually use the card to build credit history.
- You won't get an inquiry on your credit.
Cons of becoming an authorized user:
- You're not building credit in your own name.
- The primary cardholder doesn't have to let you use the card.
- If you don't pay back what you charge, that could sour your relationship with the primary cardholder.
It may be a good option if you've been denied for a student credit card. The key is finding the right person to add you as an authorized user.
Usually, this means a parent or another family member. Just be sure the person who's adding you has good credit themselves, since their credit habits will be reflected in your credit score.
3. Ask someone to cosign for you
You could also ask someone to cosign for a credit card or loan with you.
Cosigning is different from being an authorized user, since you're legally responsible for the account balance.
Pros of getting a cosigner:
- It may be easier to get approved for a credit card or loan.
- You can build credit in your name.
- You may get a better interest rate if your cosigner has good credit.
Cons of getting a cosigner:
- Defaulting on the debt could hurt your credit and your cosigner's.
- Typically, the only way to remove a cosigner is to close the account.
- Your cosigner may want to see account statements or keep tabs on you to make sure you're repaying the balance.
If you're asking someone to cosign for a joint credit card or loan, make sure you lay down some ground rules first.
It may even be a good idea to write up an agreement that spells out who's responsible for making payments.
Make Sure You're Using Credit Cards Responsibly
Whether you get a secured credit card, student card or you're an authorized user be sure to practice good credit habits.
Pay your bill on time each month
Schedule automatic payments or set up email and text alerts so you stay on top of due dates.
Keep your balances low or pay in full, if possible
Paying in full can help your credit utilization and save you money on interest charges.
Don't close accounts unnecessarily
Keep older credit card accounts open and avoid closing accounts if you still owe a balance.
Try to use different types of credit when possible but don't apply for new credit unless you really need it.
Together, those habits can help you build a solid credit foundation through college and beyond.