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I have been in the U.S. since 2007 as a student, and only recently realized the importance of buliding my credit history.

My belief is that a credit card is the way to start building a credit history.

Having being rejected for one from a bank and a store, I have come to notice the reasons for rejection as:

  1. I do not work, and thus have no recurring income
  2. I get money from my parents once every quarter to cover my tution and living expenses and thus cannot not maintain very high balances in my bank accounts. These accounts are around 3 years old - might not be sufficiently old enough to establish a history?
  3. There is an incorrect record in my credit report that I was late on my final payment for my car loan. What happened was that I paid the last and next to last payment together. The car loan company later understood this, and treated the issue as resolved, but I still see this as a "negative item" on my credit report.

What I want to ask is:

  1. Will it help me if build a credit history if I add myself as a co-holder of my parent's credit card? My parents tell me that if I add myself as a co-holder of their card, it will only affect their credit and will do nothing to establish mine.

  2. Would it be prudent to approach one of those "credit consultants" or "credit counseling" agencies to make my credit score better and help me get a credit card?

If there is any other credit instrument that I can use to build a credit history, I would like to know more about it too.

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3 Answers 3

Would it be prudent to approach one of those "credit consultants" or "credit counseling" agencies to make my credit score better and help me get a credit card?

Simply put, no. Many are actually rip-offs and a waste of time. Those that are not, are indented to repair credit not build credit from scratch.

I suggest you deal with that one negative record. I am uncertain if you should contact the credit rating agency and complain about it, or the loan provider. (I believe it is the loan provider, since they should have corrected the negative report as it was in error.)

One possible option are pre-paid credit cards. However, I do not know how effective they are and they typically carry onerous fees.

I would ask you why are you concerned about building credit so early in your life? Once you are out of school, you will have recurring income and will start to build a history of payments. If you have taken out any loans for school, that right there will be a source of payment history.

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I am in grad school, so that makes me 24 :-) –  studentOfFinance Jan 19 '11 at 0:28

Before I'd do anything else, I'd try to get the incorrect entry on the credit report corrected. That's likely to do you more harm than being a co-holder on your parent's card would do you good.

I assume that you would ask your parents to co-sign on your credit card; you do realise that you do make them liable for any debt you run up and suddenly find yourself unable to pay?

The secured (not pre-paid) credit card approach might work for you, though. Several banks offer credit cards that require you to deposit a certain amount of money with them and then you get a 'credit' card that has a limit linked to your deposit. Other than the deposit held by the bank and the generally lower credit limits, they work like normal credit cards - you get your bill, you pay it, rinse, repeat.

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Secured cards are my last bet. NONE of the banks that offer these are willing to commit to a time after which they will change me to a normal card - in fact the lowest time they officially quoted was a year and a half after I get the secured card! I am also financially responsible and try to keep my debt profile low. –  studentOfFinance Jan 19 '11 at 17:47
    
I don't think there is a set time, but keep in mind that you're building up your credit history during the time you use the secured card, so it will make it easier getting another card from another bank later on. You don't have to convert this card into an unsecured one with the same bank. –  Timo Geusch Jan 19 '11 at 18:48
    
I spoke with 3 banks this morning and they all said that for the time I was on the secured card, they would not report me to the credit unions and companies. They would just keep the score internal to the bank! If you know of some offerings where they also report your credit score, could you please share? –  studentOfFinance Jan 19 '11 at 19:35

Yes it will help your credit history if you are added to your parents credit card as an authorized user, the card will show up on your credit history as if you got the card when they opened the account originally. You should also note that this can work against you as well if they have been late paying the card in the past. Technically authorized user is a loophole that FICO claims to have fixed in the past but I don't think they actually have. I am also assuming that you and your parents are in the US and the credit card account is from a US bank.

Your real problem though is the fact you don't have any income without income you are going to have a very hard time getting a credit card. The CARD act that Congress passed last year puts severe limitations on the ability of credit card companies that attempt to lend to college students.

The other thing that is hurting you is the negative on your credit report which you should dispute with the credit bureau. There is no reason to leave that negative on your report.

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You are correct in your assumption, but the card is from AMEX. I cannot fix the "no income" issue right now, but how do I go about disputing the negative item? Should I call them up? –  studentOfFinance Jan 18 '11 at 20:51
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@studentOfFinance How to Dispute Credit Report Errors –  NickC Jan 18 '11 at 20:57
    
@Renesis. Thank you. The page says to send the credit companies a "letter by certified mail". Do I need to go to a USPS office to do something like that? How do I send such a mail? –  studentOfFinance Jan 18 '11 at 21:10
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Certified mail is a USPS function, yes. –  NickC Jan 18 '11 at 22:14
    
I got in touch with AMEX with my parent's details and they said adding myself as a "authorized user" does not require any ID from my side! –  studentOfFinance Jan 19 '11 at 0:29

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