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Heres the sitch: graduating this month, 6 figure debt, have a PD job, counting on IBR/Schools LRAP and 10 year forgiveness.

As of today - I do not have any credit. Went straight to law school from college. I plan to apply for a credit card once I start working in August, but concerned that I will be denied because of no credit history/high DTI. (is this likely?)

Basically - if my fears come true and I can't get approved for a credit card, what else can I do? Unfortunately my parents have terrible credit, so co-signers are not an option.

As a side note (that probably should be an obvious answer but bare with me) - once I start repaying my loans, my credit should build, right?

Any advice greatly appreciated.

Even with no credit you should be able to open a crappy credit card (low limit, no real rewards, high APR) at a bank if you are already a customer. Using this and making regular payments/keeping a low balance will help get a good credit history started, and even with the debt you should be able to increase the limit or get more cards with higher limits after a few months to a year.

If you are having trouble getting approved, I think they have "secured" credit cards - I'm not sure how they work exactly but I think you have a low limit (like 500 or lower) and have to make a security deposit of at least part of that amount. I think this is more something for people with bad, rather than no, credit.

Obviously this doesn't help you know but just in case other students (in law school or before) see this thread -- its definitely worth getting a credit card and using it responsibly as soon as you can. Having good credit makes a lot of things easier in law school and gives you options when things are tight between jobs and student loan disbursements.

You may have some trouble getting a credit card, but you should be able to find somewhere that approves you. Credit unions are particularly lax on giving credit cards to new borrowers. Barring this, you can probably get approved for some sort of starter loan from a credit union. These are usually for $500 or so, have high interest rates, and serve you no purpose other than building your credit, but are useful for that purpose.

Believe it or not, you actually do have credit -- federal loans, even when deferred while you are in school, build up your credit and show on your credit report. They will essentially show as 3 years (or whatever) of made payments. Often times people with no credit other than student loans have a very good credit score upon graduation. However, your credit score only affects the interest rate you pay, it will not (in theory, though many large banks ignore this) affect your likelihood of being approved. This is where DTI is key.

The fact that you do IBR and use your school's LRAP will not show up on your credit report. You'll want to inform the loan officer you're working with about those things. They will ask for documentation. Once you provide them with this information, it will knock your DTI down.

Your DTI will be calculated by your monthly payment amounts on all outstanding credit, plus your monthly rent/mortgage payment, and in some cases, your monthly utility bill, divided by your monthly gross (pre-tax) income. So if you're making a $500 student loan payment, with $1800 rent and $150 utility bill, and make $4000 pre-tax, you're looking at a very high DTI (61.25). Many big banks will not approve anyone with a DTI over 30-35, some credit unions will go to 50, or even 60 in special circumstances (e.g. high income, new grad with low limit, etc.) For this reason, it's very important to get your student loan payments to report as low as possible, and also to pay a low rent.

When you do get a credit card, make sure to keep your credit utilization low. Aim for less than 10% of the total balance if possible, but anything under 30% or so will help guide you to good credit.

Your credit will take a hit initially from the credit pulls, but after a few months it should start to build its way up. At that point, ask for an increase on your credit card limit.

I'm a former loan officer and have done hundreds of loans, many for new grads with large student debt.

Thanks for the responses. I actually did pull a free credit report and it shows a 700, could that be possible/accurate from loans in deferment?

I've been researching some options/easiest credit cards to get and keep coming across a lot of discussion about getting retail credit cards like a Target or Macys card because they're generally easy to get and will build credit. Is this true as well?

Also - do you think I'll encounter similar problems with trying to get an auto loan? or if I am able to show them proof of IBR etc, I may be able to get one even though the rate will be high?

ellewoods123 wrote:Thanks for the responses. I actually did pull a free credit report and it shows a 700, could that be possible/accurate from loans in deferment?

I've been researching some options/easiest credit cards to get and keep coming across a lot of discussion about getting retail credit cards like a Target or Macys card because they're generally easy to get and will build credit. Is this true as well?

Also - do you think I'll encounter similar problems with trying to get an auto loan? or if I am able to show them proof of IBR etc, I may be able to get one even though the rate will be high?

Free credit reports, no matter their source, are highly and consistently inaccurate. But a credit score in the ballpark of 700 sounds right, if everything you've said is true.

Target and Macy's cards may be easy to get (I don't have any experience in retail credit lending), but they have very high interest rates. Additionally, your ideal scenario down the road is having 1-3 very solid credit cards, and you'll usually want these to be from traditional lending institutions, like banks and credit unions. Closing a Macy's or Target card would negatively impact your credit. For those reasons, I do not recommend getting a Target or Macy's card unless you cannot get approved otherwise (which I don't think will be the case, nor do I think those cards would be the easiest to get).

Auto loans are more difficult to get, especially with high DTI. If your DTI is over 40 and you have no credit history other than deferred student loans, you will likely have at least some trouble. In any case, your interest rate at a given financial institution will solely be determined by your credit score. DTI only affects likelihood and amount of approval.

thanks, this is incredibly helpful! now my last question, when it comes to lenders looking at your DTI - because I'm on IBR and use LRAP and its a monthly ratio my DTI is well below 40%. But what you're saying is you still think I may have trouble getting a credit card because of that 6 figure number they can pull?

ellewoods123 wrote:Heres the sitch: graduating this month, 6 figure debt, have a PD job, counting on IBR/Schools LRAP and 10 year forgiveness.

As of today - I do not have any credit. Went straight to law school from college. I plan to apply for a credit card once I start working in August, but concerned that I will be denied because of no credit history/high DTI. (is this likely?)

Basically - if my fears come true and I can't get approved for a credit card, what else can I do? Unfortunately my parents have terrible credit, so co-signers are not an option.

As a side note (that probably should be an obvious answer but bare with me) - once I start repaying my loans, my credit should build, right?

Any advice greatly appreciated.

Do you have a work study job at your school? (RA maybe?) If so, and your school has a credit union, get a card from them.

Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

If you can't get a regular credit card you can get a secured credit card. Basically you give the bank a deposit (which can be as low as $300) which will be equal to your limit. After a year of doing right you get your money back. I did this when I got out of college. About two years in they jumped my limit significantly without me asking. My credit score is good now.

If you can deposit about 3x the amount you are going to put on the card in a given month. The general rule to keep your score high is to try to keep borrowing to 1/3 of your total available revolving credit.

However, you may very well be able to get a regular credit card. This is just a good backup.

Wipfelder wrote:Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

I agree credit building is BS and that you should check with credit unions. I have a two CC with 10-15% interest and I got both when I was in LS no credit. CC companies are desparate these days, ull get one, shop around.

mvp99 wrote:

Wipfelder wrote:Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

I agree credit building is BS and that you should check with credit unions. I have a two CC with 10-15% interest and I got both when I was in LS no credit. CC companies are desparate these days, ull get one, shop around.

Or even better, just don't have any credit cards. I never really understood the point, especially these days with so many payment options.

Wipfelder wrote:

mvp99 wrote:

Wipfelder wrote:Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

I agree credit building is BS and that you should check with credit unions. I have a two CC with 10-15% interest and I got both when I was in LS no credit. CC companies are desparate these days, ull get one, shop around.

Or even better, just don't have any credit cards. I never really understood the point, especially these days with so many payment options.

There is no reason to spend more than like 15 minutes every couple months even thinking about your credit score but I would be very interested to hear why not having credit cards is better.

Wipfelder wrote:

mvp99 wrote:

Wipfelder wrote:Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

I agree credit building is BS and that you should check with credit unions. I have a two CC with 10-15% interest and I got both when I was in LS no credit. CC companies are desparate these days, ull get one, shop around.

Or even better, just don't have any credit cards. I never really understood the point, especially these days with so many payment options.

Cash back and rewards are free money. Just treat it like a debit card and you're golden.

hairbear7 wrote:

Wipfelder wrote:

mvp99 wrote:

Wipfelder wrote:Brah,

Why do you need to build credit? 700 is good enough as it stands. All you'd really need was a home loan anyways....big banks may not take you on, but you could hit up a smaller bank/credit union with traditional underwriting.........building a credit score is such a BS notion.

I agree credit building is BS and that you should check with credit unions. I have a two CC with 10-15% interest and I got both when I was in LS no credit. CC companies are desparate these days, ull get one, shop around.

Or even better, just don't have any credit cards. I never really understood the point, especially these days with so many payment options.

Cash back and rewards are free money. Just treat it like a debit card and you're golden.

Exactly. Plus you get some fraud protection, free insurance on some stuff, its better than cash when you're abroad (e.g. for deposits), etc.

mvp99 wrote:

hairbear7 wrote: Cash back and rewards are free money. Just treat it like a debit card and you're golden.

Exactly. Plus you get some fraud protection, free insurance on some stuff, its better than cash when you're abroad (e.g. for deposits), etc.

One/Two percent cash back....so if you spent 5000 dollars a month on your credit card you'd get like, 50 bucks back. If you forgot to pay off your card or over spent on one dinner you'd basically lose the value of the points. A very small percentage of people actually work the reward system successfully.

-Debit Cards/PayPal-type institutions offer the exact same protections a credit card does.

I've traveled to over 40 countries, never used a credit card.....many of the places i've been wouldn't take them anyways. Cash is king while traveling.

Wipfelder wrote:

mvp99 wrote:

hairbear7 wrote: Cash back and rewards are free money. Just treat it like a debit card and you're golden.

Exactly. Plus you get some fraud protection, free insurance on some stuff, its better than cash when you're abroad (e.g. for deposits), etc.

One/Two percent cash back....so if you spent 5000 dollars a month on your credit card you'd get like, 50 bucks back. If you forgot to pay off your card or over spent on one dinner you'd basically lose the value of the points. A very small percentage of people actually work the reward system successfully.

-Debit Cards/PayPal-type institutions offer the exact same protections a credit card does.

I've traveled to over 40 countries, never used a credit card.....many of the places i've been wouldn't take them anyways. Cash is king while traveling.

2% cash back is always better than 0%. Plus you're building credit by having open accounts that are used responsibly.

ellewoods123 wrote:thanks, this is incredibly helpful! now my last question, when it comes to lenders looking at your DTI - because I'm on IBR and use LRAP and its a monthly ratio my DTI is well below 40%. But what you're saying is you still think I may have trouble getting a credit card because of that 6 figure number they can pull?

I'm not sure which number you're referring to. If your DTI is below 40%, the only thing that would prevent you from getting a credit card at a small credit union/bank (and perhaps even at a large bank) would be if you had bad payment history (not a bad credit score itself), like you were missing payments or making payments late consistently.

What everyone else has said about credit cards is true, so make sure you research which one you want, because closing credit cards hurts your credit score and stays on your credit report for decades. You'll ideally want to keep open your card for the rest of your life. I recommend starting with a low interest rate card, and then when you add one or two more cards down the road you might want to think about adding a cash bonus/rewards/airline miles card. You should be able to get something for under 10-11% at a credit union.

usernotfound wrote:2% cash back is always better than 0%. Plus you're building credit by having open accounts that are used responsibly.

It's not better when you pay interest on debt that is greater than the money saved, nor is it better if you overspend because of the easy access to credit.

Whats the point of building credit if the only reason to build credit is to get credit? Its circular logic.

Deleted

Wipfelder wrote:

mvp99 wrote:

hairbear7 wrote: Cash back and rewards are free money. Just treat it like a debit card and you're golden.

Exactly. Plus you get some fraud protection, free insurance on some stuff, its better than cash when you're abroad (e.g. for deposits), etc.

-Debit Cards/PayPal-type institutions offer the exact same protections a credit card does.

This is not actually true. Credit cards have more protection than debit cards.

Wipfelder wrote:

usernotfound wrote:2% cash back is always better than 0%. Plus you're building credit by having open accounts that are used responsibly.

It's not better when you pay interest on debt that is greater than the money saved, nor is it better if you overspend because of the easy access to credit.

Whats the point of building credit if the only reason to build credit is to get credit? Its circular logic.

I dont know why we are arguing. It is worth it when youre responsible. find another way thay will get me $4000 in 2 years using debit cards and paypal (paypal sucks) etc. and I'll listen. If you can't control yourself don't do it. If think you would spend more money if you had CCs dont get one.

It is also convenient to have CCs when traveling. I've been to 30 countries (years, not weeks) and Ive always used CCs even in SA where cash is king. Had my debit copied in Europe and lost $800 bc my bank wouldn't reimburse me. You cant carry cash around in some countries and hiding it in your hotel room is a huge risk. Some Car rental co won't rent you a car if you don't have a CC. Some debit cards don't work outside the US even when they say otherwise (has happened to me twice).

I think the takeaway here is that CCs are not for everyone.

In addition to credit unions, try applying for a Discover card. It has seemed to me that they're pretty friendly toward folks trying to get their first line of credit. Good luck!

Wipfelder wrote:

usernotfound wrote:2% cash back is always better than 0%. Plus you're building credit by having open accounts that are used responsibly.

It's not better when you pay interest on debt that is greater than the money saved, nor is it better if you overspend because of the easy access to credit.

Whats the point of building credit if the only reason to build credit is to get credit? Its circular logic.

This plan only works if you pay off the card in full every month. No one suggested otherwise. But if you spend 5000 a month and have a 2% back credit card (like the Venture Rewards) card, that's $1200 a year in free money. And the reason to build credit is to get lower rates when you actually need to borrow money. Do you plan to pay for your house with a debit card?

hlsperson1111 wrote:

Wipfelder wrote:

usernotfound wrote:2% cash back is always better than 0%. Plus you're building credit by having open accounts that are used responsibly.

It's not better when you pay interest on debt that is greater than the money saved, nor is it better if you overspend because of the easy access to credit.

Whats the point of building credit if the only reason to build credit is to get credit? Its circular logic.

This plan only works if you pay off the card in full every month. No one suggested otherwise. But if you spend 5000 a month and have a 2% back credit card (like the Venture Rewards) card, that's $1200 a year in free money. And the reason to build credit is to get lower rates when you actually need to borrow money. Do you plan to pay for your house with a debit card?

No need for a credit score to borrow money..........and research shows the vast a majority of people who use reward cards don't pay them off every month and/or lose track of spending. I'm sure the OP who is asking a website about advice on financial matters is gonna be the guy who is just awesome at managing his money.

The only conceivable need to borrow money that I can see (for an employed lawyer...) would be a house. For borrowing a house, no credit score required. Are you saying that buying a house should be done with a credit card as opposed to putting down a 10-20% lump sum and getting a mortgage?
Or, If your a mid-market (Or Chicago) kind of guy, you can buy a house cash in a few years of saving. (Few is a very wide term here)