Mil­len­nial money: How to get credit when you have none

Daily Local News (West Chester, PA) - - BUSINESS - By Melissa Lam­barena NerdWallet

Try­ing to get your first credit card can be as frus­trat­ing as try­ing to land your first job. Em­ploy­ers want ex­pe­ri­ence, but you can’t get ex­pe­ri­ence un­less some­one hires you. Sim­i­larly, a credit card is the quick­est way to build a good credit his­tory, but with­out a good credit his­tory it’s hard to get a credit card.

That catch-22 has been trip­ping up ap­pli­cants since the Credit Card Act of 2009, which tight­ened lend­ing stan­dards, mak­ing it es­pe­cially dif­fi­cult for young peo­ple to qual­ify for credit cards on their own. That’s left would-be ap­pli­cants with less-than-ideal op­tions: Put down a de­posit for a se­cured credit card, pig­gy­back on some­one else’s good credit as an au­tho­rized user, or de­lay credit build­ing en­tirely.

This has cre­ated an op­por­tu­nity for startup credit card com­pa­nies that look be­yond credit scores when con­sid­er­ing ap­pli­ca­tions. These com­pa­nies use al­ter­na­tive meth­ods to gauge an ap­pli­cant’s risk and of­fer cards Credit card lo­gos are posted on a store’s door in Philadel­phia. Try­ing to get your first credit card can be as frus­trat­ing as try­ing to land your first job. Em­ploy­ers want ex­pe­ri­ence, but you can’t get ex­pe­ri­ence un­less some­one hires you. Sim­i­larly, a credit card is the quick­est way to build a good credit his­tory, but with­out a good credit his­tory it’s hard to get a credit card.

that don’t re­quire a se­cu­rity de­posit.

How star­tups eval­u­ate ap­pli­cants

Among them is De­serve, which be­gan of­fer­ing cards in 2017. The com­pany has three cards: the De­serve Clas­sic for peo­ple new to credit, the De­serve Edu for stu­dents and the De­serve Pro for peo­ple with lim­ited credit. More star­tups have fol­lowed with their own cards for peo­ple new or newer to credit, in­clud­ing Pe­tal and Avan­tCard.

These com­pa­nies have their own un­der­writ­ing

stan­dards to eval­u­ate ap­pli­cants’ cred­it­wor­thi­ness based on fac­tors such as in­come, ex­penses, as­sets, debts and bank­ing in­for­ma­tion. De­pend­ing on the com­pany, you may have to pro­vide ac­cess to your bank ac­count.

“The way you use a debit card or bank ac­count is highly in­dica­tive of how you will use a credit card,” says Kalpesh Ka­pa­dia, CEO and founder of De­serve.

Cards of­fered by such com­pa­nies are an al­ter­na­tive to se­cured credit cards, which re­quire a cash se­cu­rity de­posit that’s re­funded when you close or up­grade the card. Your credit limit on a se­cured card will usu­ally be equal to your de­posit. The un­se­cured cards from al­ter­na­tive com­pa­nies may of­fer credit lim­its with more give, if you can qual­ify.

Startup credit card com­pa­nies are still evolv­ing, so you may en­counter dif­fi­cul­ties that you’re less likely to see with cards from ma­jor is­suers. There may not be a mo­bile app to man­age your ac­count, for ex­am­ple, or you may en­counter tech­ni­cal is­sues or de­lays.

“We are build­ing and im­prov­ing our prod­uct as fast as pos­si­ble and work­ing on it ev­ery sin­gle day,” says Ja­son Gross, co­founder and CEO of Pe­tal.

On the other hand, star­tups are ex­per­i­ment­ing with fea­tures that tra­di­tional is­suers gen­er­ally don’t of­fer. For ex­am­ple, the Pe­tal app and web­site show the in­ter­est you’ll

owe in dol­lar amounts, so you know the true cost of not pay­ing your bill in full. De­serve waives the usual So­cial Se­cu­rity num­ber re­quire­ment for in­ter­na­tional stu­dents.

Your fu­ture self may need credit

Un­less you plan to pay cash for all fu­ture pur­chases, big or small, your fu­ture self will likely need good credit. Hav­ing it can save you money later when you’re buy­ing a home or a car, for ex­am­ple.

An­shul Agrawal, a 28-year-old data sci­en­tist in San Jose, Cal­i­for­nia, es­tab­lished credit with a card from an al­ter­na­tive is­suer. By get­ting an early start, he qual­i­fied for a low in­ter­est rate on a

car loan. He’s now reap­ing the re­wards of­fered by tra­di­tional credit cards. “It’s kind of a credit step­ping­stone,” he said.

Al­ter­na­tive credit cards gen­er­ally re­port pay­ment in­for­ma­tion to ma­jor credit bu­reaus — Tran­sUnion, Equifax and Ex­pe­rian. These com­pa­nies gather the in­for­ma­tion used to cal­cu­late your credit scores. Pay­ment his­tory is the big­gest sin­gle com­po­nent of credit scores.

Build­ing credit with a credit card

Once you get a card, build good credit by mak­ing only pur­chases you can af­ford. Aim for a credit score of 690 or higher. There are plenty of

apps to track your progress. Here are some tips to help you man­age your first credit card and use it to build credit:

• Pay on time and in full ev­ery month to avoid in­ter­est.

• Use less than 30 per­cent of your avail­able credit limit.

• Keep the ac­count open and ac­tive.

• Check your state­ment for er­rors.

• Get your free an­nual credit re­port.

MATT ROURKE — THE AS­SO­CI­ATED PRESS

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