What You Should Know About Your First Credit Cards
Back in the old days during my first week at SUNY Binghamton University, it was my first time away from home and on my own; and I experienced a lot of strange and wonderful things. At least at the time I thought they were.
Registration day was a big thing on the university campus. If you were a new comer registering for the first time, it was the day you learned about campus life, and the campus center square was full of vendors. The vendors that stood out the most, because they had the best give-a-ways, were the ones that represented the banks and credit unions.
Yes, they were the ones that offered credit cards. To me it was like offering candy, or at least away to buy candy. As I wandered around the campus center, I hit-up no less than six of the tables that offered credit cards and applied at each of them. Not being very financially literate, I figured I’d get lucky with one application.
To my surprise I got lucky and was approved for three different credit cards. I don’t need to tell you where the story went from there. Instead I’m going to focus on providing you the information “I wish someone would have told me” when I first started on my credit venture. Financial reform now has made it tougher for banks, credit unions and credit card companies to advertise to young students entering college.
Even still, in 2016 student debt is nearly $1.3 trillion spread from among about 43 million borrowers. The average Class of 2016 Graduate owes approximately $37,172 in student loans. That is up six percent just for student loans from the previous year.
The information that I am about to give you is important information for those of you about to get your first credit card because, using your card smartly, you can avoid becoming one of those 43 million people. So pay attention to information below. It will prevent you from making some of the mistakes I made.
First who issues credit cards? Banks, credit unions and credit card companies all grant credit cards to qualified individuals. These products are like loans; but instead of borrowing a set amount all at once and then repaying in equal installments until you’re eventually at a zero balance, you’re given a credit line to use in a far more flexible way. You can make charges or have cash advances totaling up to that credit line. It can range from a few hundred dollars to tens of thousands.
The issuer sets the terms, which include a credit line, annual percentage rate (APR) and number of days you have to send a payment before the interest-free grace period expires which can be around 30 days. Be careful and read the terms. Some credit cards charge interest from the day you purchase and offer no interest free grace period. These you should avoid!
It is technically possible to get a credit card on your own, but issuers will require you to have a full-time job, which most college students do not have. We’ll discuss other was to get around these requirements below. If you’re under 21 and only working part time, you will need a parent or another trusted adult to co-sign for you on a credit card application. If you’re not responsible this is something I do not recommend. As your level of irresponsibility can cause credit rating damage on the person who signs for you.
Been there done that!
Credit card restrictions are not as tight once you pass your 21st birthday. You’ll still need to demonstrate that you have income, because issuers want to know that you can pay back what you spend, but you don’t have to be working full time.
If you don’t have any credit history at all, it can be very difficult to get approved for your first credit card. Here are a few strategies that can help you clear that hurdle.
Apply for a Secured Credit Card with a Bank or Credit Union. These cards require you to deposit a certain amount in an account to secure payment on your charges. If you deposit $500.00, then that is your credit limit. You can charge up to that $500.00 on the card every month and pay the bill on time and in full. If you do not pay in full, you will be charged interest on everything that was on your credit card and you will have only have the remainder of the $500.00 credit line to spend. A secured credit card is AN EXCELLENT WAY to teach you to budget and to give you the convenience of being able to charge instead of carrying cash or to charge on-line purchases. This is also AN EXCELLENT WAY to build a positive credit history, and eventually you’ll be able to get an unsecured credit card.
“I wish somebody would have told me that” when I first went to college.
Get a Co-Signer. If you get someone else to co-sign for you, that person’s income and credit score are used o determine your eligibility. However, if you misuse the credit card, your co-signers credit history will suffer. That only begins the process of bad feelings between you and that trusted person. Trust me the relationship is worth more than the credit.
Become an Authorized User. Authorized user status is different from getting a co-signer. As an authorized user, you’ll have a credit card with your name on it, but it will be tied to someone else’s credit card account. If that person uses his or her credit card wisely, it will reflect well on your credit history. And visa-versa If your credit history is negative it will reflect on their credit history. Once again if you are not responsible you don’t want to go this route.
Live off Campus. If you live on campus, your housing costs won’t help you build credit. But if you rent an apartment or house, you can ask your landlord to report your rent payments to the credit bureaus. That’s enough to give you a credit file, which is better than having no credit history at all.
Many landlords are leery of tenants who don’t have a credit history at all. Even if your parents can’t co-sign for a credit card, they may be willing to co-sign your lease. That may help you get approved for a rental.
If you get approved for a credit card. Once you receive it you can start to charge immediately. You may shop with it at a store, order over the telephone or enter the data online to buy something from a Web retailer. You can use it as often as you like, as long as you don’t exceed the credit limit. In about 30 days, you’ll receive a bill. It will indicate what you charged and where, as well as the total of what you owe.
It’s recommended that you pay in full. You will be offered the option to pay the minimum requested payment. THIS IS THE LAST WAY YOU WANT TO PAY YOUR CREDIT CARD. While this may be very tempting I caution you not to fall victim to this offer. YOU WILL FIND YOU ARE ONLY PAYING THE INTEREST AND NEVER PAYING OFF YOUR DEBT. Interest will continue to be added and rolled over the next month and so on, and you are on your way to spiraling credit card debit. Your APR will probably go higher and now you are even paying more for your past purchases. You are now a “CASH COW” to the credit card company and you are in DEBT!
Pay the full amount of the bill every month. Make that a habit you don’t forget. Learn to shop within your means and this should not be hard. Making the payment in full helps you to avoid paying any interest fees in short makes you the winner using the credit card. If you find this difficult because you see all the credit balance that you can use for charges, try the secured credit card explained above. It gives you the convenience of a credit card and keeps you in your budget.
It is important enough to say again that the ideal is to pay off the total you have charged each month before the due date, so you are not paying interest on what you purchased which causes you to pay more for what you purchased. Again be careful. If you pay ONE PENNY less than is what you purchased that month, you are charged interest on the total amount charged that month, NOT JUST THE PENNY UNPAID. How is that for unfair?
Another “I wish somebody would have told me that.”
What happens to all your credit information? What you do with the card is no secret. The issuer sends all of your activity to the three major credit reporting bureaus — Experian, Equifax and TransUnion. This includes credit line given to you, the amount you currently owe and whether you’ve made on-time or late payments, how many and how late.
These companies compile your data into credit reports that they make available to others who may have a business interest in you. To make it even easier for those who want to know how you’ve been managing your credit. All your financial data listed on the reports is translated into a credit score called a FICO Score. That number is the quick and easy way for a lender to know what kind of borrower you are and is what they use to determine if you get a loan and what interest you are going to pay for that loan.
Where most people get hurt is not being aware of what this information is used for. Lenders and other businesses use the FICO and other information in the credit report to evaluate your applications for credit, loans, insurance, or renting a home. Employers are also using credit reports for hiring decisions which makes it even more important to maintain a good credit rating.
Now, always keep in mind three major factors:
1. You do not want to get into expensive and long-term debt, so spend only what you can and will pay off in full in a month’s time.
2. Remember that “they” are perpetually watching. How you conduct yourself with that card will constantly be reported and scored. So build your credit rating by paying on time and keeping that balance low.
3. Check your credit at a minimum of once per year. By law the three credit bureaus — Experian, Equifax and TransUnion are required to give you the reports free. The reports won’t have your credit score on them, but you need to check to be certain you payment information is being reported correctly and that accounts that you have paid off, are listed as paid in full.
Eventually you may want to get another card or loan. Your excellent history with the first will make you attractive to all others that follow.
“I wish somebody would have told me that.”
The content in this post on credit cards is not sponsored by any bank, credit union or credit card issuer. It is written from the heart of the author to help others from falling into the credit card trap that he did.
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