Question:
I’m currently 20 years old and I’d like to apply for a credit card. I heard that if you’re under 21 there is no chance of getting accepted, is this true? Tyler – New England
Answer:
Consumers that are under the age of 21 are able to apply for and be approved for credit cards but under the credit CARD act there are certain requirements they must meet. As somebody under the age of 21 you must either have sufficient income to show you’re able to repay any debt you incur or have a co-signer over twenty-one. Let’s have a look at the first option as it’s probably the best option for most people under the age of 21.
To be approved the law states you must have sufficient income, but what counts as sufficient income? That really depends on the type of credit card you apply for and the credit limit they offer you. If you apply for a card with a high credit card and annual fee, you’ll need a higher income to have “sufficient income”.
If you’re applying for a card aimed at college students, then a smaller income will be necessary as the credit limit will also be quite small. Usually you’re monthly income should be at least 1/5th of your credit limit to have “sufficient income”. This means if the credit limit you’re applying for is $500 you’ll need to have a monthly income of at least $100.
If you don’t have any monthly income (e.g relying on parents or student incomes) the only way to get a credit card is with a co signer. It’s important to note that the co signer must be over 21 years of age.
When applying for a credit card with a co signer, the card issuer will pull both yours and the co-signers credit report (this is called a hard inquiry and causes your and your co-signers FICO score to drop by about 5 points usually). If you co-signer has poor credit history then you’ll be denied for the card, if they have good credit history in most cases you’ll be approved.
Your co-signers credit score and history will be effected depending on whether you make payments or time (score will improve) or late (score will decline) so it’s important to make sure you’re financially responsible not only for your credit health, but also for your co-signers.
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Other Options For Those Under 21?
A lot of people will struggle to find somebody to co-sign for them and if they have little or no income it’s impossible to get a regular credit card. Thankfully there are more options out there.
Prepaid Credit Cards
This is a perfect option for parents/guardians that want their children to have access to money in the case of emergency or simply want to give them a pre-set spending limit each semester without having to worry about it ruining their credit.
You simply load any amount onto a prepaid credit card (e.g $500) and then use it like you’d use a regular card.
Being Added As An Authorized User
Parents can also add their children to their accounts as authorized users. This gives them a card under their own name, but it’s tied directly to the parents main account. This can make monitoring their credit spending easier for parents. Cancelling authorized cards is very easy with most banks and can be done online or via the phone if spending gets out of control.
A lot of card issuers also allow you to be notified when a spending limit is reached on authorized cards.
