How to secure credit without a credit history?

[Emma G]

How can one apply for credit, by a loan or credit card, without having a credit history?

I am a student, and need to advance tuition payment for the semester. Federal student loans are out of the question, and I do not have a cosignor. Is it possible to secure under $5000 without having a credit history?

Also, can anyone explain how credit cards work? There are student credit cards offered, but how are these paid off if they are still in school? Are there any that are available to students with no established credit yet?

[MSC2471]

Chances are best if you've established a savings and checking account history with a bank for a long period of time, you may be able to get a loan through those services.

Credit card companies are going to be very leery of giving you much beyond a $500-$1,000 limit, especially with your unproven credit history.

Credit cards that are offered at school are enticements to get you on the trail of owing money for a long time. They usually get you in with a lower introductory interest rate, which then shoots up to over 21% per year. They also tie in yearly fees and other miscellaneous fees, hoping that you will not pay off the balance on a month to month basis.

Good luck and keep us posted on your progress.

Matt

[James81]

Why are Federal student loans out of the picture?

[Emma G]

Because my family has a high income, and I have monthly allowance that gives a set amount in my account. My parents won't advance this sum total to me, and think that I should be able to downgrade my living requirements in order to meet all my expenses.

I have enough to pay off the loan or credit card by the end of the summer, keeping all other things stable, but I need to pay the sum total at this time.

So, I don't want to compromise or disrupt my other living arrangements, in order to pay for this sum total now.

[James81]

Originally Posted by Emma G

Because my family has a high income, and I have monthly allowance that gives a set amount in my account. My parents won't advance this sum total to me, and think that I should be able to downgrade my living requirements in order to meet all my expenses.

I have enough to pay off the loan or credit card by the end of the summer, keeping all other things stable, but I need to pay the sum total at this time.

So, I don't want to compromise or disrupt my other living arrangements, in order to pay for this sum total now.

Have you actually applied for a studen loan (through fafsa, I mean)?

Because federal loans aren't based on income. GRANTS are based on income, but not loans.

[Emma G]

The FAFSA also considers family income and contribution for eligibility, so this won't work.

I think the only options right now would be a student loan or personal loan, or a credit card to advance the amount.

[James81]

Originally Posted by Emma G

The FAFSA also considers family income and contribution for eligibility, so this won't work.

Not for a loan they don't.

Go apply for fafsa (make sure you have either your tax return or your parents tax return). Seriously, what is the worst that can happen? They deny you?

[James81]

FAFSA - Free Application for Federal Student Aid

They look at family income to determine how much you can receive, but everybody is eligible (for unsubsidized loans).

I'd lay down a fiver right now to say that you could get your $5000 if you applied.

[James81]

http://studentaid.ed.gov/students/at...et_04_2009.pdf

Scroll down and read the section for unsubsidized loans.

[Apollia]

Debt can be a very dangerous thing. I was in a rather similar situation once - going into debt to buy things because of my family being (in my opinion) insufficiently helpful. (It sounds like your family is a lot more helpful than mine was, though - giving you a monthly allowance).

I would probably have been better off never going into debt, and just patiently saving up money, without bills constantly draining my earnings all the time.

Originally Posted by Emma G

Also, can anyone explain how credit cards work?

I sure can. Astroblahhh.Com - Credit Card Boycott In my opinion, credit cards are an example of legalized crime. The amount of usury credit card companies get away with today used to be illegal.

If you ever find yourself unable to afford to pay at least the minimum payment, credit cards will eat you alive with fees, like $39 late and overlimit fees.

When I first got my Capital One card and had hardly any credit history, it had a $200 credit limit. They raise the limits over time if you're reliable. I can't remember exactly when I ended up with a $5000 limit on Capital One. Maybe 3 years after I first got the card. More credit was just more rope to financially hang myself with, though. Too bad no one warned me.

I've heard student loans are even worse than most forms of debt because those debts can't be erased by bankruptcy.

It sounds like your family is pretty financially savvy. I would recommend taking their advice and just cutting down on expenses instead of going into any debt at all.

You must have an enviably large allowance for your family to think that will quickly give you enough money to afford college. You have a wonderful, enviable situation and I highly recommend not ruining it by going into debt.

It does sound like you'll probably be able to afford to pay off the cards and not get behind on payments. But, even so, the interest would still be a waste of money that I'm sure you could think of much better, more fun uses for than giving it to some credit card company.

Good luck and best wishes.

Apollia

[ns123]

You say you get a monthly allowance from your parents, but they won't help you pay for school? Why not?

I apologize for being presumptuous but in my past experience, parents who give their kids a monthly allowance, but are not willing to pay for school, do that for a good reason. Usually because their child has proven through behavior to be untrustworthy or not serious about school. I've never met a parent who has an extremely academically successful child, but refuses to pay for schooling, but will issue a monthly allowance.

I am not sure the question of getting a loan to go to school is the right question. As I don't think you've set yourself up to successfully get a loan. You do have options, which judging from the advice already given, I am unsure you are receptive of those options. But here they are:

1. cut back on your expenses, save the money, and then go to school
2. get a job (or 2nd job), save your money, cut back, and then maybe go to school sooner
3. ask a friend or relative to help - but that's assuming that you have friends/relatives who are willing to help you.

Good Luck.

[Emma G]

Thanks for your replies, all are very helpful!

@ns123: My parents give me enough to cover school and living expenses, and at a set monthly amount. The reason why I need a loan now is to pay advance for some of my expenses, that are normally paid month-to-month.

I don't want to cut back on one of the other expenses, like moving apartments, etc, just to cover an advance payment, and then have an excess later.

So, I would like to find a way to cover this advance payment, keeping all the other elements stable.


@Apollia: Yes, I don't think credit cards are a legitimate industry, more like a derivative business packaging money and fees in various ways. My parents also gave me a debit card but told not to get a credit card. But as a short-term, temporary way to fund an advance payment, that looks like one option. I would not keep the card past the season, after it has been paid off.


@James81: Thanks! This is very informative. I have looked at the Stafford application, and it says that all federal loans are given directly by my school, so to contact the school office. The other thing I'm not sure of is whether my parents would agree to sign, because they did not want the FASFA application or any loans in their name when I was in high school. They agreed to pay for the tuition and my expenses at a set rate.


So overall right now, things are mostly comfortable, except that I need to advance an amount, that I would normally pay evenly and monthly.

I think private loans mostly require a credit history, so possibly a student loan, or credit card looks like the options right now.

[James81]

Originally Posted by Emma G

@James81: Thanks! This is very informative. I have looked at the Stafford application, and it says that all federal loans are given directly by my school, so to contact the school office. The other thing I'm not sure of is whether my parents would agree to sign, because they did not want the FASFA application or any loans in their name when I was in high school. They agreed to pay for the tuition and my expenses at a set rate.

The loan would be in your name.

Not only that, but the loan being in your name would establish you some credit and start your credit history.

[ballhit2]

If you want to establish credit without means...you should have your parents buy themselves a new car and have you be a co-owner.

They make the payments, you get the credit score.

[aelle]

Originally Posted by Emma G

@ns123: My parents give me enough to cover school and living expenses, and at a set monthly amount. The reason why I need a loan now is to pay advance for some of my expenses, that are normally paid month-to-month.

I don't want to cut back on one of the other expenses, like moving apartments, etc, just to cover an advance payment, and then have an excess later.

If I understand correctly, you want to take a loan to make regular payments, but in advance?
One of the core rules of sound financial planning is to NEVER EVER pay operational costs with loans. Companies who don't respect this rule usually go bankrupt within 3 years, and individuals get in similar troubles. Loans are for investments - an education, a car, a home. It's expensive to borrow money, what you use this expensive money for needs to pay back.

If you don't have the money aside or can't put it aside for your daily expenses, even when they are a bit out of the ordinary like now, then you are living above your means. Either start making more money, or start spending less.

As an aside, how old are you, Emma? This may help with providing more tailored advice.

[Emma G]

I'm 21.

It is the same amount total, but some of it needs to be used now, that I would not otherwise be using this summer. Everything is still within the means and the account, but some of it needs to be shifted to advance now, instead of during the season.

Anyways, the credit cards and loans look too complicated.

I might just ask to delay some of the payments to summer, like a deposit for apartment and advance rent, and some other things. That might be the best, although not ideal option right now.