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It's the old chicken/egg story. This reader can't get credit because she has no credit history. But is that really the problem? I think not.

If you read many money websites, you’ve read lots of stories about how to improve your credit history and score. That’s good.

If you want to borrow money, credit scores are a critical part of the equation. But they’re not the entire equation.

Here’s this week’s reader question:

I am a 21-year-old college student who has NEVER been able to get a credit card. I have even been denied for a SECURED credit card! This is frustrating because I believe I am very informed and would have had an excellent credit score by now. When I get denied for credit cards, I am always told I have “insufficient credit history.”

Now, how am I supposed to build credit without being able to obtain any? I now have a 2-year car loan in my dad’s name with me as a co-signer (this is about to be paid off), and federal student loans. I am still being denied for credit cards, and I’m sure probably loans. What can I do? It’s so frustrating because it’s hard to even consider buying a house or car without having credit history! — Christina

Christina’s question struck me at first as nearly laughable. Not that her concerns are silly; they’re quite common. It’s just that she’s forgetting a very important ingredient in the credit-granting formula.

To illustrate, let me take you back to 1977, when I was her age.

The way it used to work

  1. You went to school. You didn’t have a credit card, because no bank was stupid enough to offer one to a kid without a job.
  2. You graduated and got a job. Now that you had income, you were at least theoretically able to pay back money you borrowed.
  3. You applied for, and received, a credit card. My first plastic was an American Express card, which had to be paid off monthly. It wasn’t hard to get because I had verifiable income.
  4. You applied for, and received, a car loan. My first car was a classic — a 1957 Triumph TR3. I borrowed the money to buy it by joining a credit union. Because the car was so old, they wouldn’t lend against it. Instead, they gave me a signature loan based on my verifiable income.
  5. You built credit, then bought a house. I bought my first house at age 22. Because I didn’t have enough cash or credit to do it alone, I had to pool my resources with those of a friend. I increased my equity with sweat, further established my credit, then eventually bought my own house.

The way it works today

It works the same way as it did in 1977.

True, some things changed. One example: Somewhere along the line, banks decided that corralling customers at an early age was worth the risk of handing plastic to students without jobs. Surprise! That often didn’t work out well for either party. This led to a provision in the Credit CARD Act of 2009 precluding banks from offering credit cards to anyone under 21 unless they had a co-signer over 21 or could prove sufficient income.

And here we arrive at the point.

Nowhere in Christina’s 141-word lament does she mention the key ingredient for repaying borrowed money. It’s not a good credit history or a thick credit file. It’s income.

Christina says she has student loans and a car loan in her dad’s name. If she’s been meeting these obligations, she should have a good, albeit thin, credit file. But if she has no income, why should anyone lend her money?

Shortly after I quit my job as a stockbroker to begin this business more than 25 years ago, I wanted to refinance my $50,000 mortgage. Although my house was worth several times that, and I had several times that much in the bank, I was turned down flat. Why? I’d quit my job. I had no income.

I was incensed. How could a bank turn down my mortgage request when I had great credit, collateral worth far more than the loan and three times the loan amount in their bank? Their answer, “Because you could get on a plane to Vegas tomorrow and lose it all.”  Maddening, but true.

What Christina should do

I have to admit, I’m surprised Christina can’t get a secured credit card. Since they’re guaranteed by a deposit equaling the credit line, anyone who can fog a mirror usually qualifies.

But that’s beside the point. The point is that for as long as money has been lent, those doing the lending have been requiring those doing the borrowing to prove they have both the intent and the means to repay it.

Christina certainly seems to have the intent. That’s revealed in her credit history. But until she has the means, her credit requests are likely to fall on deaf ears.

What Christina needs to do is continue to monitor her existing credit while building her credit history the best she can. There are tricks to building credit when you don’t have any: See “7 Ways to Build Your Credit Score Without a Credit Card.”

But if she wants to have lenders knocking at her door, she needs to make some money. As soon as she does, she needs to join a credit union, where loans are often, though not always, easier to obtain.

It worked for me in 1977, and it will work for her now.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. I’ve been investing in both stocks and property for more than 35 years.

Got some time to kill? You can learn more about me here.

Stacy Johnson

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I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


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