Can I get a credit card if I don’t have any credit or a job?

The answer is complicated. Trying to get credit without having credit is a catch-22, because you need credit to build credit. Fortunately, there are some loopholes to this situation.

For one, you can build credit by getting a secured credit card from your bank or credit union. The different between a secured card versus a traditional credit card is that you must deposit money in a savings account before using the credit card. Therefore, any spending you do with the card is “secured” by the money you deposited. Keep in mind a secured credit card is different than prepaid debit card; you can’t build credit with a prepaid debit card, but you can with a secured credit card.

If you’re still curious how to obtain credit without having it or a job, here are two resources that can help guide you in the right direction: “Build Credit – Learn How to Establish a Solid Credit History” and “How to Establish Credit.”

An important law that dictates whether or not you can get a credit card is the Credit Card Act of 2009. This law states that if you’re under the age of 21, you cannot get a credit card unless you have a cosigner or proof of your ability to repay the lender. A secured credit card is also a good way to establish credit if you’re under 21 since it shows you have the ability to pay up to the amount that is deposited in the savings account associated with the secured credit card.

Written by Alex Ziskind and Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center

What do I need to know about the borrowing process?

Many students and families rely on borrowing to finance their education and Federal student loans are often the primary source of these funds.  The Office of Student Financial Aid (OSFA) encourages students and families only to borrow when it is a necessity, rather than borrowing as a convenient way to finance their educational expenses.

Once a student and family make the decision to finance their educational expenses through borrowing, it is important they make informed and educated decisions about the type of loan(s) to borrow and the amount of borrowing required to pay their educational costs.  Factors that should be considered and discussed throughout this process include: understanding what is means to be a responsible borrower, understanding the types of loans available and the application process for each, and understanding the repayment requirements and options for any loans borrowed.
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What is the difference between federal and private loans?

In addition to Federal student loans, there are alternative educational student loans available from private lenders.  These programs are meant to supplement federal and state aid if you have exhausted all other sources of funding for your education.  Student and families are encouraged to use Federal loans since they usually offer borrowers lower interest rates and have more flexible repayment terms and options than alternative student loans.

An alternative student loan is a nonfederal loan, made by a private lender such as a bank, credit union, state agency, or a school.  The private lending entity provides valuable information about the alternative loan process and interest rate calculations.  This information should be carefully reviewed.

What should I know and expect about repaying my loans?

Understanding the details and commitment of student loan repayment is perhaps the most important aspect of the process.  It is important to understand when repayment will begin, where payments should be sent, what repayment plan is most appropriate, and what happens if a loan payment is not made or cannot be made.

For alternative student loans, the repayment process is determined by the private lender or servicer.  The private lender or servicer will need to provide this information to the borrower.

When does Federal student loan repayment begin?

You don’t have to begin repaying Federal student loans until after you leave college or drop below half-time enrollment.  Your loan servicer will provide you with a loan repayment schedule indicating when your first payment due date, amount of each payment, number of required payments, and frequency of payments.  The repayment process usually occurs after a grade period, allowing you time to secure a job and have earnings to assist in the repayment process.

For alternative student loans, the repayment process is determined by the private lender or servicer.  The private lender or servicer will need to provide this information to the borrower.

What Federal repayment plan is most appropriate?

A variety of repayment plans are available to borrowers and borrowers should look at each plan they may be eligible for and determine monthly and overall payment amounts.  The following list provides an overview if the types of repayment plans available for Federal student loans.

Standard Repayment – This is considered the default repayment plan and uses a level and fixed payment amount over 10 years.

Graduated Repayment – This plan allows lower early payments, followed by higher payments later in the repayment process.  Payments usually increase every two years.

Extended Repayment – This plan allows an extended repayment period for level and fixed payments, up to 25 years, instead of 10 years under standard repayment.

Income Based Options – Several repayment plans use a combination of your debt level, gross income, and/or family size to determine the payment amount.  Your payment amount under these plans will change as your income changes.

What should I know about student loans if I want to be considered a responsible borrower?

You should only borrow what you need.

A loan, unlike a grant, is borrowed money that must be repaid.

You must keep your loan servicer informed of any changes in your name, address, telephone number, Social Security number, or school enrollment status.

You must repay your loan even if you didn’t get the education or job you expected, and they can’t be canceled because you didn’t complete your education.

You can prepay the whole loan or any part of it at any time without penalty.  This means you are paying some of the loan before it’s due.

If you apply for deferment, forbearance, or consolidation, you must continue to make payments on your loan until you have been notified that your request has been processed and approved.

Your student loan account balance and status will be reported to national credit bureaus on a regular basis.  Repaying your loan responsibly can help you establish a good credit rating and failing to repay your loan can damage your credit rating.

The consequences of defaulting (failing to pay according to your loan contract) on a federal student loan are severe and long lasting. For example, you might not be able to buy a car and your federal income tax refund could be applied to your student loan balance instead of being sent to you.

There are repayment options available to assist you if you’re having trouble making payments.