Category

Student Credit Cards

A Cautionary Tale: What To Do When You Literally Have No Credit

As I had stated last week, my Cousin just got a job in Seattle, so I will be heading out there over Labor Day.

Well my Cousin is just about to graduate College, and now that he is entering the real world, he asked for some help setting up his finances before his new job started, so I obliged.

Now I’m sure he is not the only one, but for some reason, at 22 years old, he has never had a  Bank Account or Credit Card in his own name. Both are technically under his Parents’ name.

While I have been telling him to sign up for a Credit Card for the last few years, he has put off that free advice until now!

While the majority of travel hackers obviously think of Credit Cards as primarily a great way to earn boat loads of miles, surprisingly they do serve other functions!

The most obvious is that Credit Cards can help you build your Credit History.

The longer your Credit History, the better picture Credit Lenders (like Chase) have to calculate the amount of risk you present to them.

If you have a 20 year Credit History of always paying on time, then there is a highly probable chance that you will continue that pattern.

If you have a 2 year Credit History of paying when you feel like it, there is a highly probable chance that you will continue that pattern.

Having Credit is not only just for getting loans!

It is also becoming standard practice at many Companies to now require credit checks of all prospective employees. If you can’t manage your own finances, how can a company expect you to manage theirs?

In addition, I am currently looking for a new apartment and every single leasing company that I visited required a Credit check.

In my Cousin’s case, not only is he going to need an apartment but he is also going to need a car since his job is outside of Seattle in Bellevue.

Hopefully, the apartment situation will be fine without a Credit Report! However unless he makes a huge down payment on a car, he most likely won’t be able to get financed for a loan unless his Parents co-sign (which I’m sure is every Parents dream)!

Therefore for any Parents out there, I strongly encourage you to sit down and have “the talk” with your high school age children about Credit and sign them up for a Student Credit Card.

Not only will you help them build their Credit, but once they graduate College, they will have enough of a Credit history to sign up for the big boy travel cards!

John Doe

So before my Cousin signed up for a Credit Card, I directed him towards the Beginners Guide.

He also had quite a few frequent flyer accounts that were in disarray, so I told him to sign up for AwardWallet.

After he did that, before signing up for a Credit Card, I told him to head over to Credit Karma and Credit Sesame.

While it is obviously a good idea to check your Credit Score every couple of months, in my Cousin’s case, I wanted to check to see if he even had any type of Credit Report.

Some times when Children are added onto their Parents’ Credit Card account, if their Social Security Number is added to the Card, then the Parents can inadvertently help the Child build their Credit from a young age. If the Credit Card is only in the Child’s name and is not attached to their Social Security Number, then normally it won’t helping in building the Child’s Credit.

After he created a log-in and entered his personal information on Credit Karma, we got this error message. At first, I thought maybe he entered his Social Security Number wrong or mistyped his address, so I told him to try Credit Sesame.

However we got a similar message.

The Perfect Storm

At first I was dumbfounded because I helped my younger Brother complete this exact same process this past Summer (prior to College). Although he didn’t have any Credit, they could still at least verify that he existed.

But then when I started to think about it, the situation my Cousin was in was really The Perfect Storm.

For most College students, even if they don’t have a Credit Card, they typically have some form of federal student loans (subsidized or non-subsidized). These loans are included on your Credit Report, so even without having a Credit Card, College students with loans will build their Credit

However in my Cousin’s case, he didn’t have any private or federal student loans.

Another thing that most people don’t think about is Bank Accounts.

While they don’t directly impact your Credit Score, when you open a Bank Account, they ask for your SSN. Therefore when you go to open a Credit Card, when they pull your Credit Report, although there might not be any Credit History, they can at least verify that you exist and can tie you down to a specific physical address.  However again my Cousin’s case, his bank account was registered under his Parents’ name which is why Credit Karma and Credit Sesame couldn’t he pull his report.

If having Credit wasn’t such a serious situation, it would almost be comical how under the radar my Cousin is currently flying!

For government conspiracy theorists, this would be their dream. While most people have a huge backlog of data about their purchasing habits, payment history, previous addresses, etc that can be data mined and then used to build consumer profiles, my Cousin literally has none of this. When he was added onto his Parents’ Bank Accounts and Credit Cards, the Bank does not typically verify the identity of additional Card holders.

Starting From Scratch

While I originally thought that my Cousin only needed help signing up for a Credit Card, I quickly realized that we were going to literally going to have to start from scratch and sign him up for his own Bank Account.

As I practice what I preach, I sent him over to CharlesSchwab.com and told him to register for a free online checking account. Not only will this help him avoid any unnecessary ATM and account management fees, but when he has to travel overseas for his job, he won’t be charged any foreign transaction fees.

After we set up that, I sent him over to my Student Credit Cards post and told him he had his choice between Capital One Visa or Discover. While typically I would have suggested the Chase Freedom, in his case since he literally had zero Credit History, I decided to not even risk it since the Chase Freedom isn’t officially considered a “Student Card”.

He opted for Capital One.

The ironic thing is that when he signed up for the Capital One Credit Card, where it asked for his annual income, I told him to reduce his income because his starting salary is so high that it might actually flag the system and cause more problems.

However because Credit Card companies only base your Credit Limit solely on your Credit History, even though he will be making close to $100,000 a year, he will have the same $1,000 Credit Limit as my 18 year Freshman Brother.

Hopefully my Cousin will pay all of his bills on time, and in a year or so of monitoring his credit on Credit Karma and Credit Sesame, he can apply for a big boy travel card with a credit limit of more than $1,000.

The situation my Cousin has found himself in is really unfortunate and could have been completely avoided had he had his own Bank Account and Credit Card when he started College.

Even if he pays all his Credit Card bills on time for the next 2-3 years, in the event he wants to buy a house in the near future, bank lenders will look at his Credit Report with a skeptical eye since even when he is 25, his Credit History will only be 3 years long. Whereas someone like myself who signed up for a  Credit Card at age 18, will have a 7 year Credit History when I turn 25.

Don’t Make The Same Mistake

The point of this post is to encourage any Students and the Parents of college aged students to not sit on the sideline and wait to apply for a Credit Card and Bank Account until the finals days of College.

Even if you have young children, you should really think about setting them up with a free checking account at your local Credit Union or Bank.

It is never to early to start learning how to manage money because unfortunately it isn’t a skill that is taught in school!

-Parag

Student Credit Cards

Student Credit Cards

Frequent Flyer University primarily goal is to help new mile collectors learn the game. Not surprisingly, a lot of those beginners happen to be college aged students and new graduates who want to travel but have limited funds thus they turn to frequent flyer miles. That’s how I got hooked!

From personal experience, I can 100% assure you that if you do not have any established credit history and try apply for any big offers like the 50,000 Point Chase Sapphire Preferred credit card or 30,000 Point Starwood Preferred Guest credit card, YOU WILL GET DENIED and your credit score will get dinged for the unnecessary inquiry.

The good thing about this topic is that I have been in this situation before, so I have firsthand experience. Also this past Summer I set my brother, who is a college Freshman, up with his first credit card.

Credit Scores

First thing is first, you have to check your credit report and credit score.

I know I have been talking a lot about credit scores these past few weeks, but IT IS EXTREMELY IMPORTANT.

The two services I recommend are Credit Karma and Credit Sesame. For more information about either service, please read my old post on how to get your scores and reports for free.

My Personal Experience Applying For My First Credit Card

When I was 18, the summer before College I figured I probably should get a credit card. I did all the research and narrowed it down to the safe choices but of course I decided to try my luck with American Express.

I don’t remember the exact card I applied for, but as Suze Orman says Denied.

For some reason or the other, I then decided to go with Capital One. They approved me for a credit card except that approved me for their credit card that doesn’t have any rewards, which I still have to this day. In my defense, back in those days, I really had no idea about rewards and was just happy that I was approved for a credit card. I mean it is free money right?

The funny thing about that crappy Capital One card which I still have is that they refuse to increase the credit line on the card from the original $1,050 even though I have a Capital One VentureOne card with a limit 20 times that.

Eventually in college, I saw an offer for a Discover Card that offered a pretty large sign up bonus ($150!!!), so I got that card too.

My Brother’s Experience

Given what I had learned from my experience, I knew not to try and sign him up for any American Express or any Chase airline credit cards because that would be an instant denial.

Therefore I opted to sign him up for the Discover Student Card. I’ll talk about the specifics of the card below but don’t worry there is a reason to the madness.

He was approved and got a $1,000 credit limit.

Why Student Credit Cards?

If you have no credit history like most students, you will not be able to sign up for an airline credit card off the bat because Banks are essentially “paying” you money (or miles) to sign up. Therefore they don’t want to spend 50,000 miles on someone with no credit history because they might not pay their bills.

Therefore you have to get a student credit card to build your history.

Now most student credit cards are pretty lame and the credit card companies know that as a student your options are really limited, so like my first Capital One card, many student credit cards don’t come with rewards.

Now I have heard you can sign up for Store credit cards like Macy’s or Kohl’s and get approved pretty easily. These Store credit cards will help you build your credit history however in my opinion those cards are even lamer than Capital One because you can only use them in the specific store.

The Million Dollar Question – What To Do About Income?

For most college students and new graduates, your monthly income is probably negative due to student loans and tuition costs.

I would not endorse putting down a fake income, as it will get flagged and they will ask for proof.

In my and my brother’s case, we each put down how much we had in our bank accounts at the time, and how much money we made from our summer jobs, for a grand total of about $10,000. That was enough to get us approved.

Student Credit Card Options

Citi Dividend Platinum Select Visa For College Students

The Citibank Student Credit Cards are the Cards I recommend the most to Students & recent Graduates who email me saying they don’t have any Credit.

The first Citi Student Credit I would recommend is the Citi Dividend Platinum Select Visa primarily because it looks and acts just like it is an Adult Card.

It has the same design you would find on a regular Citi Dividend Platinum Card and you get the same awesome rotating 5% Cash Back categories, there is just a lower Credit Limit.

This Card also earns 1% Cashback, which is an awesome perk for a Student Card.

Link To Citi Dividend Platinum Select Visa For College Students

Citi Forward Student Card

The Citi Forward Card is also geared towards people who are in College or just graduated College.

The difference between the Citi Forward Student Card and the Citi Dividend Platinum Select College Visa is that the Citi Forward Student Card earns Thank You Points that you can use towards free flights and gift cards.

Ultimately it depends on personal preference for Cashback or Points, however I always recommend Points.

Link To Citi Forward Student Card

Discover Student Card With $25 Sign On Bonus

While most mile collectors shun Discover because they don’t offer any cards that truly earn airline miles, I’ve had a Discover Card for 5 years now and have no complaints.

I actually am a fan of their rotating 5% categories that Chase copied for their Freedom card. If there is  5% off on gas or restaurants, I’ve been known to bust out my Discover Card from time to time.

he other cool thing about Discover is that there is no annual fee on most of their cards. This means you can open a Discover Card and leave it open forever, without having to worry about it, all while building your credit history!

The Discover Student Card is one of the only student credit cards that offers Cash Back of up to 1% plus a $25 sign up bonus!

While it isn’t a glamorous card, it is better than not earning any rewards and not getting any sign up bonus!

Once you have had your Student Card for a while, Discover will typically automatically bump you up to their real credit card and increase your credit limit.

Capital One Journey

Thankfully Capital One now has a student card with rewards!

Although Capital One is another credit card company most frequent flyers shun because they don’t offer any true “mileage earning” credit cards, I’ve always been pretty happy with them.

As I said before, I still have my original no rewards Capital One card. The main reason for this is that besides for extending my credit history, all Capital One cards (including my no rewards card) have NO INTERNATIONAL TRANSACTION FEES!

While I currently have 2 cards that don’t have any international transaction fees, the Chase Sapphire Preferred and Capital One VentureOne card, this was not always the case. Before I had those 2 cards, when I would travel I would use the crappy Capital One no rewards card to avoid the 3% international transaction fees. Yes I didn’t earn any rewards, but I also saved 3%.

That being said, if you plan on traveling abroad or studying abroad during college, then the Capital One card might be your go to card! This way you can still earn rewards but avoid necessary fees!

Link To Capital One Journey Card

Moving On Up

After you have had your student credit card for 6-12 months, you can try your luck at applying for the big boy cards.

I would suggest checking Credit Karma and Credit Sesame before applying for any airline cards, as those sites will show you if your credit score has increased and by how much.

My Brother is coming up on his 1 year Discover anniversary, so I will let you know how his application for an Airline Credit Card goes.

Hopefully this post helps the many college aged FFU readers who have asked about student credit cards.

If you have any questions, you can always reach me at FrequentFlyerUniversity@gmail.com

-Parag