Now more than ever, it's challenging for young people to build a solid credit history. Find out what options are available for young adults of all ages-even those under 21.
Money Girl
169 MG The Best Ways to Build Credit
Building a portfolio with Fidelity Basket Profolios is kinda like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics. And managing it as one big, juicy investment. That's pretty good. Learn more at Fidelity.com/baskets. Investing involves risks including risk of loss. Fidelity Workers Services LLC, Member NYSC SIPC. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. Linked in. The place to be. To be. Hi everyone and welcome back to Money Girls Quick and Dirty Tips for Richard Life. I'm Laura Adams. Last week I told you that to celebrate Financial Literacy Month, I'm devoting each post in April to an urgent or embarrassing question from a blog reader or podcast listener. Maria wants to know what's the best way for a young person to establish credit. I'm almost 21 and am embarrassed to say, "I don't know anything about what it takes to be a financially responsible adult." Maria, there's no shame in being a beginner when it comes to personal finances. We all have to start somewhere. In past articles, I've talked about the importance of your credit score and ways you can increase it. But increasing your credit score is even more of a challenge when you're also building it for the first time. You've heard of a Catch-22? It's like this. You can't build a credit history without a credit card or loan, but you can't get a credit card or loan without a good credit history. Financial institutions have credit standards that are stricter than ever these days, and if you're a young adult, it's even harder. Financial institutions generally aren't sympathetic to the fact that as a young person, you simply haven't had much time to establish credit. The credit card "accountability, responsibility, and disclosure" or "card act of 2009" just made it even tougher on young people. Card companies used to set up booths on college campuses and offer promotional goodies to entice students to sign up for a credit card, not anymore. Those types of marketing efforts are now prohibited. The regulations that kicked in earlier this year put a real damper on the credit party. They put a new spin on the term "getting carded." Now, if you're under the age of 21, you have to show sufficient income or assets to get a credit card. So, what's a youth to do? Let's start with what's possible if you're under the age of 21. There are two options. You can ask someone who's at least 21 and credit worthy to co-sign a new credit card account with you, or you can become an authorized user on a parent's existing credit card account. When you share an account with a friend or family member, all the account activity appears on both your credit reports. That can be fantastic unless the other person makes late payments or maxes out an account, which would be harmful to both your credit scores. Therefore, you should never enter into a joint account lightly. You run the risk of hurting your credit if something goes wrong with your co-owner's personal finances or motivation. With a co-signed account, always sign up for online access and payment alerts so you can closely monitor spending on the account. If you're over 21, your first priority should be to focus on the kinds of credit that are the easiest to get. Don't set your sights on a jumbo mortgage or a fancy car loan, for example, until you've taken some credit baby steps. There are four main types of credit cards that you can use to build your credit. Secured credit cards, retail store cards, gas station cards, and subprime credit cards. Let's review each of those cards and see how they might be used as a tool to ramp up your credit. A secured credit card requires that you put up a deposit in exchange for credit. The minimum deposit amount varies by card. For example, if you deposit $300, you might be allowed to make purchases that total $300. Your deposit is returned after you close the account or prove your credit worthiness. If you abuse a secured credit card, yup, you guessed it. They use your deposit to pay off your debt. You'll want a secured credit card that reports your payment history to the major credit bureaus and doesn't charge monthly or annual fees, like the Public Savings Bank Classic Visa. That way, if you consistently make payments on time, your credit score will improve and move you closer to getting a regular unsecured credit card or an installment loan. Visit creditcards.com where you can research more secured card offers. Whether you're scouring business financial sites or listening to economics podcasts like this one, you'll find there's no secret to successfully managing your company's finances for the future. You just need PNC corporate and institutional banking. Whose team of dedicated relationship managers bring 160 years of experience, advice and an array of tools and tech to scale to any size business. PNC Bank, brilliantly boring since 1865. PNC Bank, National Association, member FDIC. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. Linkedin, the place to be, to be. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step. But having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Another option to start building credit is to open up a retail store card. They can be easier to get than a regular credit card. It seems that whenever I shop at a store like Nordstrom or J-Crew, the checkout clerk offers me a store card. They usually come with some kind of perk, like 15% off your first purchase, for instance. The downside is that store cards charge high interest rates. So if your goal is to build credit, consider opening up a retail account at a store where you already shop. Try checking their website to see if they offer a store card. If you get one, charge something small from time to time, but pay off your balance in full by the due date each month. If you do that, the interest rate doesn't matter because you're never charged interest when you don't carry a balance from month to month. Just like with a retail store cards, a gas station card can be a great tool to build your credit, if you use it wisely. These kinds of credit cards also charge high interest rates and offer low credit limits. Some gas station cards require you to pay off your balance in full each month. If that's the case, they're not revolving accounts and don't report your payment history to the credit bureaus. Having a card like that won't do you any good if you're trying to build your credit. Revolving accounts, on the other hand, are those that allow you to defer payment on part of the balance and they do affect your credit. So if your goal is to increase your credit score, a gas card with a revolving account is what you want. Check out cards offered by BP and ExxonMobil for starters. Another type of card that's available if you have a short credit history is a subprime credit card. They are real credit cards with sky-high interest rates, some as high as 30%, and usually come with low credit limits and extra fees. So use subprime cards with extreme caution. Remember that the only reason to use one is to build up a strong payment history, not to rack up huge interest charges. Find subprime offers on sites like bankrate.com and creditcardguide.com. My quick and dirty tip for using these alternate types of credit cards is to make small purchases that you're absolutely sure you can pay off in full each month. That way you never get hit without outrageous interest charges and you prove that you know how to handle credit. Your credit baby steps will start to pay off. You'll establish credit, your credit score will increase, and you'll qualify for loans or credit cards with reasonable terms. You'll find links to all the websites I mentioned in the show on the blog at moneygirl.quickanddirtytips.com. If you prefer to read a book rather than to listen to it, you're in luck. Moneygirl's 10 Steps to a debt-free life is now available as a short e-book. You can purchase it in the Amazon Kindle Store, the Sony Reader Store, the Fiction-wise e-book store, and more. Learn how easy it is to get out of debt and stay out of debt for good for less than $4. Take control of your finances and create a more secure future. I'm glad you're listening. Cha-ching! That's all for now. Courtesy of Moneygirl, your guide to our richer life. ♪ H5N1 bird flu is spreading in some animals. If you work with poultry, dairy cows, wild animals, or with raw, unpasteurized milk, wear protective gear, and take precautions. CDC.gov/birdflu, a message from CDC. Earning your degree online doesn't mean you have to go about it alone. At Capella University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success, and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. [BLANK_AUDIO]