A Young Adult’s Guide to Getting Started With Credit Cards
If you’re on the tail end of the millennial generation or the start of Gen Z, you probably know that no matter how attractive the points and miles hobby is, getting approved for a premium card like the Platinum Card® from American Express isn’t exactly a piece of cake at this stage in your life. That said, it’s important to remember everyone has to start somewhere. Consider this your guide to raising your personal finance mojo on the way to getting the credit card of your dreams.
Step 1: Find Your Go-To Bank
I believe it’s vital for a young adult to have a main bank where they keep the majority of their business. Banks have traditionally focused on two types of customers: high balance and high potential. As a result, banks have established programs for customers who can maintain a significant account balance.
In the past three years however, younger customers have become increasingly savvy about what different banks have to offer, and in order to stay competitive banks have become more flexible about whom they issue credit cards to. That said, a customer’s banking history and account patterns are key, so make sure your account history shows that you are responsible.
In short, when it comes time to apply for a credit card, you want to be viewed by your main bank as a valuable and loyal customer worthy of that risk.
Step 2: Know How Credit Cards (and Credit) Work
Previous TPG posts have extensively outlined different components that go into understanding how credit cards can bring great rewards, so for efficiency’s sake check out these stories for background. (Pay special attention to the components of a FICO score, credit utilization, statement date vs. due date and bonus-spend deadlines.)
- Ten Commandments for Travel Rewards Credit Cards
- What Is a Good Credit Score?
- Important Dates for Your Credit Cards
Step 3: Going for Your First Card
Everyone’s situation is different and so the first credit card for one person might be the second or third for another. Nonetheless, there are credit cards such as the The Amex EveryDay® Credit Card and the American Express® Green Card that are good, basic options for as a first-time user. (For more information on great starter cards, see First Credit Cards to Get When You Turn 18.
Thanks to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, the basic requirements for independently applying for a credit card are: 1) being at least 18 and 2) either having a paying job or a co-signer. (Having a seasonal job such as being a lifeguard or a ski instructor will qualify.) When I applied for my first card at 18, I had no credit history and only a seasonal job as a part-time ski instructor. As a result, I applied for a starter card with my go-to bank and was approved with a very small credit limit. Everyone has to start somewhere.
Step 4: Don’t Waste Opportunities
Remember that whenever you use cash or debit cards you’re missing out on getting value back. This is because when you use a credit card with associated benefits, you can receive a return on investment (ROI) in the form of cash back, credit-card points, airline miles or hotel points. You also get to build your credit history.
So think twice next time your friend says, “Just Venmo me” for lunch. Why let them pay for both your meals and get the points or cash back when you could grab the check and get some of that ROI yourself? (In the spirit of working smarter and not harder, you could even ask your parents to use your credit card to pay for some of their bills, assuming they’re able to pay you back and you have the capital to float before they do.)
It Helps to Find a Champion
When applying for a more mid-range card, I’ve been denied several times in the past for not having a job with a high enough salary. In my experience, to get a mid- to upper-tier card you want to at least have stable job that pays more than $20,000 to $35,000 per year.
That said, it pays to have someone influential in your corner.
Earlier I mentioned how as a young adult you want to find a go-to bank that best serves your needs. But there’s not one but two critical relationships you want to establish when engaging in business with a bank. The first is with the bank itself and the second is with the president or vice-president of the bank’s local branch. That’s because when you do apply for a credit card, the bank is going look into your credit history. But what if you don’t have any? Assuming your parents aren’t cosigning your application, the branch president or vice-president can vouch for what kind of customer you are and say whether or not you are trustworthy enough to be given credit.
Even beyond this initial step, those relationships can pay off. I had to have my local branch vice-president fight hard to get me approved for a mid-tier card. He was willing to do it, and able to do so successfully, because I had a longstanding history with my go-to bank, I’m fiscally responsible, and he knows exactly what type of customer I am. Our relationship is so good that I would go so far as to even call him a friend: He takes a personal interest in my successes and vice versa.
There’s no formula for establishing this kind of relationship. My advice is to just be a compassionate human being. Get to know them and give them periodic updates on how you’re doing. Just as they want you to invest your business with the bank, you want them to invest in you. (It doesn’t hurt to be a fan of the game and talk shop with them about credit cards, banking technology, etc.)
While you may still be a ways off from exploring the full world of rewards credit cards, you have an advantage in being able to start learning the tips and tricks of the game now. Never before has there been a credit-card market targeting young adults in such a rewarding way. So get ahead of the curve and tap into this power. You’ll soon be reaping the benefits.
Featured photo by Westend61/Getty Images.