Editorial Policy

Expert Q&A: Underage and Ready to Build Credit

Erica Sandberg

September 6, 2011

QDear Erica,
I am a 20-year-old student in college with a steady job that revolves around my class schedule. I have a cell phone plan with Verizon, but when I got the phone, the representative checked my credit history and could find nothing, but still gave me the phone without a hefty deposit. That got me a little nervous. I know credit checks are standard when applying for a loan, when buying a car or even a house. But with no credit to speak of, I’m afraid I can’t apply for a credit card and get accepted to build a score. So how can a student with a stable income manage to get a credit card and build up a credit score? What are my options? — Toby

ADear Toby,
Before I explain how to obtain a credit card and establish a credit history, let’s get to the bottom of what’s going on with your cell phone. Like most wireless providers, Verizon offers a couple of different service options. One is a prepaid plan called “Pay as You Go.” With it, you pay the monthly bill before using the phone. The company does not require you to put a hefty deposit down, and qualification is not contingent on your good credit. Because there’s no contract, if you want to cancel it at the end of the month, you won’t be charged a penalty fee.

The monthly service plans, however, are contractual, and the company will bill you after you get the phone and begin to use it. These plans tend to be less expensive than the prepaid ones, and the deals on mobile devices are usually better. Since there is a certain amount of trust involved when billing after service is provided, the company analyzes your credit to make sure you are a worthy customer. Ask Erica

I called Verizon just to see what type of credit score and history they require for the monthly service plans, but that information is not available to the public (nor the press, apparently). However, you’ll know pretty quickly whether or not you pass their test: when you give your name, Social Security Number and date of birth, they’ll run a credit check on you. In mere minutes, they’ll let know if you meet their standards. Since your credit history is blank, my guess is that you got a prepaid arrangement. No big deal! You’re probably paying just a few dollars more than you would with the monthly service plan.

Now, when applying for a loan or credit card, credit reports and scores are a major factor in qualification. Again, think of the trust involved: The bank or credit card company is lending you money without knowing for sure if you will repay it. How you’ve borrowed and repaid in the past is an indicator of how you will do so in the future. They’ll also look at your income to see if you have the means to cover what you borrow and the length of time you’ve been at your job to determine stability.

So how can you build such a credit history to get a credit card — and then qualify for a car or home loan? Well, because federal law has made it tougher for those under the age of 21 to do so, you have three basic choices:

1. Obtain a secured credit card. These cards require a cash deposit that the bank will put in a special savings account to be held as collateral. You can use it like any other credit card, but if you fail to pay your charges, the bank can take the money in the account.
2. Have your parent co-sign. If your parents have good credit, they might consider co-signing on an account for you. Careful, though. Since mom or dad will be guaranteeing it, they’ll have to pay if you don’t — and the negative activity will appear on all cardholders’ credit reports.
3. Get a great paying job. Employed? If you can prove that your income is sufficient to cover the credit card’s spending limit, you may be able to qualify for one in your name only.

Once you have the account, it’s up to you to work it to your advantage: Charge regularly and pay the balance on time and in full. After about a year or two of doing so, you’ll have created a nice little credit history that you can present to others with a “see how fabulous I am!” grin.