How do I establish credit?

Dear Dollar Diva,
One of your suggestions to build credit is to get a department store credit card. I tried to get one, but was turned down. I am 18 years old, have no credit, but I am trying to establish good credit. What can I do?

— Jennifer


The Diva assumes you are working and can afford credit card payments. If not, you can stop here; you have no business pursuing this.

The person trying to establish credit hits the same brick wall that the inexperienced worker faces when he’s looking for a job. He can’t find one because he doesn’t have experience, and how does he get experience when no one will give him a break?

Like the determined job-seeker, you need to chip away until the rock breaks. It may take some time, but if you learn something from every encounter, you’ll succeed. Here are some rock-chipping ideas:

  • Be judicious in your quest: denied credit applications can show up on your credit report. Try to set up a meeting with the credit manager to see if you qualify before submitting your application. Explain why you want a personal meeting, and when you’re granted one, wear something nice; first impressions count. If he says you’ll be turned down, ask what you need to do to get a thumbs-up. Don’t come back with a new application until you can deliver the goods.
  • Contact the credit manager of the department store that turned you down. Ask why you didn’t qualify, then correct it.
  • Open a savings account at a reputable bank in your neighborhood, and make a deposit every time you get a paycheck.
  • Open a checking account at that same bank. After you’ve had the account for a couple of months and haven’t committed any sins against it, like bouncing a check, request an application for a credit card. Fill it out neatly and carefully, and make an appointment with the bank’s credit manager. Ask if you’ll qualify. If you won’t, find out what you have to do, then do it.
  • Get credit card applications from other reputable banks in your neighborhood, meet with their credit managers, and if they give you a “nay,” find out what you have to do to get an “aye.”
  • Get a business card from each person you talk to and keep a record of what each one wants so you can follow up when you’ve done what needs to be done to qualify.
  • Consider a “secured” credit card; a credit card collateralized by your own cash deposit. You win by making the monthly payments on time, proving that you have the money and discipline to make credit card payments in a timely manner. There are minefields, so before you apply for one, read Bankrate.com’s ” Ten questions to ask before getting a secured credit card.
  • Go to college. Education is the ticket to higher earnings, and credit card companies like that.

Someone could co-sign for you, but the Diva frowns on it. Although there may be that rare instance when a co-signer is appropriate, it’s better to get credit on your own merit and stay away from co-signing relationships.

Once you’ve cracked the code and have a credit card to call your own, remember the Diva’s rule: Never charge more than you’ll be able to pay when the bill comes in.

DOROTHY ROSEN has a master’s degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.