What to Know About Obtaining Your First Credit Card

For better or worse, you need a credit card to get by these days. Even if you don't want to borrow money, having a credit card can help you do things like rent a car, book a hotel, buy a plane ticket, and more. Sure, you could use a prepaid card instead, but these often come with lots of fees.

Plus, regularly and responsibly using a credit card helps you build credit for your future. Whether you plan to finance a car, rent an apartment, open utility accounts, or even get a mortgage someday, good credit is required to get approved and receive the lowest interest rates on loans.

But sometimes it can be hard for young adults starting out to get a credit card because it's the chicken and egg scenario: they don't have any credit but need credit to obtain a card, and creditors are hesitant to approve someone with little or no credit. If you aren't in college, you won't qualify for special college student deals.

According to Experian data, most Gen Z consumers with a credit report have at least one credit card. At the of Q3 2022, 86% of Gen Z consumers who had a credit score had at least one credit card. So, no need to fret. It can be a frustrating catch-22, but there are solutions.

How to Get a Credit Card as a Young Adult
You have to be at least 18 to get a credit card. But if you're under the age of 21, you need to prove that you have your own, independent income.1 There's no hard guideline on how much you need to make, but the credit card company will verify that you earn enough to afford your payments. If you have a full-time job, you may qualify for a credit card on your own. If you don't earn independent income, the greater chance a co-signer will be needed. Income isn't the only important consideration when applying for a credit card. You'll also need to have a good credit score. This is a three-digit number creditors use to determine how risky you are as a borrower. The most common scoring model is the Fair Isaac Corporation, or FICO; the higher your score, the less risk you present, which means you'll qualify for the best cards and lowest interest rates. Here's a quick overview of how your FICO score is calculated:

• Payment History (35%): Think of this as your track record of paying your bills on time; missing payments can cause your score to drop quickly.
• Amounts Owed (30%): This considers the total amount of money you owe and compares it to your overall credit available. Having high balances relative to your credit limits (also known as your credit utilization rate) can negatively impact your score.
• Length of Credit History (15%): The longer your credit accounts have been open, especially if they are in good standing, the better it is for your score. This includes the average age of your accounts, the ages of your oldest and newest accounts.
• Credit Mix (10%): Having a variety of different credit types, like credit cards, retail accounts, installment loans, and mortgage loans, can positively influence your score. Lenders like to see that you can manage different types of credit responsibly.
• New Credit (10%): Opening multiple new credit accounts in a short period of time can signal higher risk, especially if you don't have a long credit history.

The exact score needed to open a credit card will depend on the particular card. But in general, you should have a “Good" score of at least 670. Some cards (especially those that offer lucrative rewards) might require a “Very Good" score of 740 and up. It’s also helpful to review various credit cards.

What to Do If Your Credit Card Application Gets Rejected
If your credit card application gets rejected, it can be a frustrating experience, but it's not the end of the world. Here are some steps you can take to understand the rejection and work toward qualifying for a credit card.

Find out why you were denied
You are entitled to know the reason for the rejection, and the credit card company should provide this information via an "adverse action" letter or email.2 This contains the specific reasons for the rejection, such as low income, high debt, a low credit score, etc. You should receive the letter within seven to 10 days of your rejection. Understanding the reason you were denied will help you know what you need to work on.

Apply for a different card
Maybe you applied for a card with eligibility requirements that were out of reach. Do some research and consider selecting a card that better aligns with your credit profile. If you were rejected for a card that requires excellent credit, for example, consider options that may be more attainable with your current credit score.

Note: Be careful about applying for multiple cards at once. Each time you submit an application, the card issuer needs to pull your credit report, which results in a “hard credit inquiry."3 One or two hard inquiries might ding your score a few points; several hard inquiries within a short period of time can do some damage. These hard credit inquiries stay on your credit report for two years, but their impact lessens over time.

Fortunately, many credit card companies let you get pre-approved online so you can find out if you likely qualify for a card based on some initial personal information.4 This only requires a “soft" credit inquiry, which doesn't impact your score. If you find a card you like, you'll still need to officially apply for it. While there's still a chance you could still be rejected, getting pre-approved greatly improves your chances of approval.

Take time to build your credit
As a young adult with little experience borrowing money, there's a good chance you were denied because of a thin credit profile. It may be worth taking some time building up a good credit score before applying for another card. Here are some ideas for improving your credit:

• Pay bills on time: Consistently paying your bills on time — including credit cards, utilities and rent — is crucial. Payment history is the largest factor in your credit score, so even one late payment can have a significant impact.
• Keep balances low: Maybe you already have a retail card or gas card. If so, try to use only a small portion of your available credit. A low credit utilization ratio (the percentage of your total available credit that you're using) reflects positively on your credit score.
• Don't open too many accounts: Each time you apply for a new credit account, it triggers a hard inquiry, which can ding your credit score. Applying for many accounts in a short time can compound this effect.
• Monitor your credit: Regularly checking your credit reports allows you to catch any mistakes or signs of identity theft early. You can get a free report from each of the three major credit bureaus through AnnualCreditReport.com.

Consider a Secured Card
Rather than applying for a traditional credit card right off the bat, you might want to start off with a secured credit card. This type of card is designed for people who are building or rebuilding their credit.5

To open a secured credit card, you provide an upfront security deposit that also serves as your credit limit and collateral for the card issuer. For example, if you make a $500 deposit, you'll usually receive a $500 credit limit. You can use a secured credit card just like a regular credit card to make purchases, pay bills and more. Secured cards often come with interest rates and fees similar to those of traditional credit cards. If you carry a balance from month to month, you'll be charged interest.

You also need to make monthly payments on any balance, just like with a standard credit card. Your security deposit does not cover these payments; it's simply held as collateral. Most secured credit card issuers report your activity to the major credit bureaus (it's always good to double-check). If managed responsibly, a secured card can help you build or improve your credit history and credit score. And over time, if you demonstrate responsible use, some issuers may return your deposit and transition you to an unsecured (i.e. “regular") credit card.