While picking up a new shirt at J.Crew a few months ago, I asked about opening one of those store credit cards —you know, the ones that give you a discount on the first purchase. I filled out the paperwork, and the cashier phoned the lending bank and gave them my information. "You'll hear if you've been approved by mail in a few days," he said. A few weeks later, I got a letter from World Financial Network National Bank (how dubious does that sound?) saying they would not be able to extend me a line of credit.
The J.Crew card was the fourth one I'd applied for over the past year, and it was my third rejection. I am a 27-year-old professional with a full-time job, no mortgage, no children, and no student loans. With the exception of one outstanding dental bill, I have absolutely no debt. I pay my bills on time; I never miss rent. I should be an ideal candidate for a credit card, right? Not so.
With the economy in the dumps, it's harder than ever to get a card. The amount of credit card offers mailed to U.S. households has dropped precipitously in 2009, from an estimated 1.13 billion in the first fiscal quarter of 2008 to 372.4 million in the same period this year. Why the decline in junk mail? Last month, credit card default rates reached their highest point since the recession began. Bank of America claimed its rate hit 14.54 percent, while Citigroup (which issues MasterCard) saw its default rate go from 10.03 percent to 12.14 percent. American Express, however, reported a slight decrease—from 8.9 percent to 8.4 percent—in default rates. Perhaps that decline is related to AmEx offering certain customers a $300 bribe to close their accounts.
Well, that explains why my American Express application got rejected. But why, despite my decent financial record, am I a particularly bad candidate for a credit card? I've got no credit history. Typically, the best time to get your first credit card is in college, when banks litter campuses with offers. One study estimated that students receive 25 to 50 applications per semester . I was always wary of getting a credit card as an undergrad. I was living hand-to-mouth, and it was always easy enough to pick upa bar tab with a debit card. What I didn't realize was that I'd very soon need a credit card to live. If I'm doomed to a life without plastic, what am I going to do if I want to buy a house or lease a car? There are certain things you can't put on a debit card.
My quest for credit is a paradoxical one: How can I establish a credit history when banks won't let me create one in the first place? When my American Express, MasterCard, and Continental Chase Rewards applications were denied, I did what friends and relatives advised—try to take out a card with a department store, hence the J.Crew Card. It turns out they gave me bad advice—J.Crew, just like everybody else I had tried before, requires applicants to have a prior credit history. Gail Cunningham, the spokeswoman for the National Foundation for Credit Counseling, told me that, historically, gas cards and department store cards have been relatively easy to get because the companies' "risk is pretty small—how much can you charge at the filling station?" But in this time of economic decline, even those once-freewheeling retailers are cutting back on the number of applications they approve. Standard & Poor's recently reported that U.S. retail outlets that extend credit claimed losses of 12.2 percent in May, the highest since S&P started tracking such data in January 2000.
So what should I do to get a credit card? I could just keep filling out applications—and I'd probably have a better chance with smaller community banks, as they didn't suffer the financial blows that the larger institutions did. But sending in loads of applications will probably hurt me in the end. When lenders review applicants, they look at five factors: identification, account history, public records (bankruptcy filings, court records of tax liens), consumer statements (challenges to the status of an account with a lender), and inquiries. That last item is the most crucial for those of us with no credit: It shows how many times lenders have requested to review an applicant's credit history. The more times that information has been reviewed (and rejected), the more suspicious you look as an applicant.Since I have no credit history, I basically don't exist to these lenders—and since I've only started applying for credit in earnest since the start of the credit crunch, I pose more of a gamble to these banks, who aren't willing to take risks on applicants who can't prove their fiscal prudence.
As a last resort, I went to a branch of Chase Bank, the place that happily accepts my twice-monthly direct deposits. "You don't have credit?" the costumer service rep asked. "Well, it's going to be very hard to get [a card]." I had heard about secured credit cards, which require you to put up cash as collateral—think of it as a credit card with training wheels. When I asked the financial adviser about that option, she laughed—laughed!—and said Chase didn't offer those. It was like that scene in Pee-wee's Big Adventure, when Pee-wee asks to see the basement of the Alamo and gets heckled off the grounds by the tour guide.
My quest for credit does have a happy ending, however. Bank of America actually does offer one of those secured credit cards, the BankAmericard Visa Secured Card. Mine just arrived three weeks ago. First purchase? A hotel stay for a friend's wedding out of town. (My balance is almost maxed out for the month, alas.) It will take about a year before I've proven my worth and can get those ridiculous credit-card training wheels removed—my account will be evaluated periodically and, provided I'm in good standing, my credit score will increase. And you know what? If my mailbox suddenly becomes flooded with offers, I promise I won't complain.