When I was in college in the early 80’s, getting a credit card was incredibly easy. During New Student Week we were deluged with credit card applications. Piles of them filled dorm trash cans and cluttered the campus post office, and I never heard of anyone getting turned down if they applied.
Fast forward to today, and credit access for twenty-somethings is far more complicated. According to Bankrate, only 1/3 of young adults aged 21-29 have a credit card. Sometimes they are blocked by the load of student debt they are carrying. Sometimes they are rejected because they have no work experience and they have not interacted with the financial system in any way. One thing parents can do to help their children be financially successful is make sure their children participate in the banking system during their teen years. (Here’s a great article on how to do that.) And sometimes, the process can just be muddled and make no sense. My children’s story is a good case in point.
Two Children and Two Very Different Experiences
In spring 2015, my son walked into the local branch of the Very Large Bank (VLB) where we bank, where he has his own account. After a 20-minute conversation, the bank employee granted him a credit card with a $1,500 credit line. At the time, he was still in college, was just 21, and had two part time jobs in addition to being a full time student.
A year later, my daughter applied for a credit card via the online portal of her VLB. She was already 23, working full time and had graduated from college. Her VLB turned her down. We approached our private banker at our VLB, and requested that they arrange a credit card for her, with a low limit of $500. She was turned down again, despite the fact that we have banked there for over 20 years, and the fact that her younger brother was carrying a credit card with a higher limit from the same institution.
Our VLB did offer us the option to co-sign a card for her, but she was determined to establish credit on her own. After a little more research, my daughter wound up at our local credit union, where they were very gracious and signed her up on the spot for an excellent “starter card” for young adults. So the story ends happily, but we still can’t figure out why her experience was so different from my son’s.
It’s important that young adults begin early to establish a good credit rating, even if their experiences along the way don’t always make a lot of sense. Here are three things you can do to help your child make a good case for credit without turning to you to co-sign with them:
- Encourage your child to find employment and file their associated tax returns responsibly. Banks will look to a source of repayment, and allowances don’t count.
- Make sure your child has a checking account and knows how to use it. If they’re on a first name basis with employees at your local branch, even better.
- If you’re worried that your child might not handle credit responsibly, consider “fronting” a deposit of $300-$400 for a secured card. Secured cards have a low credit limit, usually equal to that opening deposit. With a secured card, your child can learn how to use credit without affecting your credit rating.
