Starting early with a credit card. It’s a piece of advice I wish someone had given me a decade ago.
Writing this article today has me remembering my own high school and college days. For the record, I didn’t even use a credit card until after graduating college! Sounds a bit crazy, even to me, looking back on it now.
Learning from a young age to spend, save, and pay off a credit card wisely is a critical skill. It’s one that I never had a chance to learn myself as a high school or college kid. In order to steer our Home At 30 readers in a better direction, let’s dive into credit cards today.
Why start using a card? Which credit cards should you look at and which should you avoid? It’s time to start adding to your financial toolkit (if you haven’t already) with the trusty credit card!
Benefits of Starting Early with a Credit Card
Let’s jump into a quick overview of building credit. Being careful about selecting your card puts you in a great position to see the many benefits a card can offer.
Build a Great Credit Score
Of all the financial levers we can move in a positive direction from a young age, a good credit score sits near the top. We (usually) don’t have tens or hundreds of thousands of dollars as a teenager. What you have, though, is an ability to prop up your credit habits. This puts you in a strong position once you hit early adulthood, at a time where peers are just starting to build credit themselves!
You can’t build a long track record overnight, which is why earlier is better!
Building a positive credit history doesn’t start with a glamorous card and an unlimited ability to spend. Any bank and/or card company checks very carefully before handing out credit.
The likelihood of being able to pay the money back is obviously a top concern for them. Just look at where we ended up in the 2008 financial crisis. Horrible lending practices in the housing market sunk the entire global economy!
Your first card should be a secured card. What exactly does “secured” mean? As WalletHub puts it:
A secured credit card is a credit card that requires you to place a refundable security deposit, the amount of which becomes your spending limit, preventing you from spending more than you can afford to repay. Secured cards are great for people with bad credit or limited credit because they offer nearly guaranteed approval.
Take a look at the secured options your bank has to offer. Beginning at $500, $1000, or $2000, is a perfect place to start building. You’ll keep yourself in check with that cap limit in place.
For example, I’m with Bank of America and they’ve got a number of choices on the site for young people looking to start with credit building. You’ll notice the “secured” card option is at the top of the pile here.
Stacking Up Rewards
Credit cards reward their customers for a few reasons. Responsible spending and loyalty are arguably #1 and #2 on that list. If you combine both over a sustained period of time, the opportunity to rake in the rewards becomes available. Who doesn’t like getting free stuff!?
Each card comes with unique perks, whether that’s travel, incentives for students, spending more on groceries – you name it. A good card that rewards you for doing the things you regularly do can be a powerful thing.
In my own case, I got the Bank of America Travel Rewards card shortly after college. Six months into my career, I had the opportunity to live and work in Australia for my company. Over the year and a half I was in Sydney I came back and forth four times. As you can imagine, that’s a LOT of flight miles I racked up over time. With my company expensing those flights, I got my cash back but still ended up with tens of thousands of points on my card. Hopefully, this shows you the beauty of card rewards and why it’s important to factor your habits/career/etc. into your choice.
Even with the plentiful benefits of starting early with a credit card, there’s bound to be some downside as well. Keep the following in mind as you begin a search for an appropriate card. You have the ability to protect yourself while still realizing the positives!
APR – Watch and avoid it!
APR, or Annual Percentage Rate, is a combination of fees that a lending institution charges a cardholder over the course of a year (hence, annual). Everything in life has an interest rate, as we’ve discussed before. Credit cards are no different. APR is a combination of an interest rate and an annual fee.
For example: Let’s say you have a card with a $75 annual fee, and 15% interest. If you spend $500 on your card per month and pay back $500, your APR payments would total $75 after a year. With the majority of cards, APR only kicks in if you don’t pay your bills. If you are spending $500/month and only paying back half of that, you will be getting charged interest on those outstanding dollars. When you eventually get the cash to repay the APR, it’s going to cost you more than what you spent in the first place!
Watching out for APR is very important no matter how young or old your credit is. The good news is, APR doesn’t have to be a burden for you if you pay off the card routinely.
Build Smart and Build Young
For anyone over 18, it’s never too soon to begin your credit-building career. I would have been miles ahead of the credit score game if I started before college instead of after. Starting early with a credit card requires smart money management and preferably a secured card. This combination is the perfect way to get your feet wet with credit.
After a few years of successful building, your financial freedom will grow ahead of your peers and you’ll have yet another tool in the toolkit for wealth building, rewards, and financial flexibility.
All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.
Author: Joe Savoia
Joe is a 2014 graduate of Northeastern University and currently works in a field sales role for technology company Acquia. He has worked internationally as one of Acquia’s earliest Australia-based employees and helped in the early stages to develop that region. Today Joe is based out of Boston and lives in Somerville, MA. Joe’s primary interests vary widely, including everything from robotics/AI to finance, blockchain, and the rapidly evolving world of tech we live in.