Is it time for a credit card?
March 14, 2008 9:31 PM Subscribe
Should I sign up for a credit card right now? If so, from where?
I'm an unemployed college student. I'm due to graduate in May, and currently have no job since I'm a full-time student. (I'm looking for "real" jobs for when I graduate.) I'll delve into (much) more detail in a minute, but the basic gist is that people keep telling me I need to get a "real" credit card to build history, but I think now may be a bad time.
I should also disclaim that I'm extremely contemptuous and distrusting of the credit industry. I believe that they, as an industry, have gone out of their way to exploit people with financial problems; I find it repulsive that they're exempt from usury laws; I'm yet to find a credit card company that doesn't engage in one sleazy practice or another. More than anything, though, I have major issues with credit reporting: I never asked to be put in a database with some random third-party group, and I think my financial data is the last thing in the world they have a right to know anything about. I realize that it's very helpful to banks, but that doesn't appease me. Not only is it a (creepy) invasion of my privacy, but I have major issues with them being the definitive word on whether I'm creditworthy or not. (It'd be like if I spontaneously declared that I was the "Job Rating Bureau" and kept files on every person in America, every time they've been disciplined at work, every place they ever worked, for how long, and also reported when people applied for jobs. And then, when someone went to apply for a job, the company would contact me to ask what I thought of them. Oh, and employees could only see my ranking of them once a year. And that's only because Congress forced my hand.)</rant>
So I acknowledge that some of my reluctance is that opening a credit card is "giving in" and playing by their rules. But I also think it just doesn't make sense at this point in my life:
- I have no job. I last had a job this past summer.
- I have about $2,000 to my name. It's in a local credit union, which has also issued me a (Visa-branded) "check card," which works as both a debit card and an ATM. The money just comes out of my checking account. This works very well for me.
- I have around $10,000 in student loans. I consider myself pretty prudent in this regard: they don't officially become payable until I graduate (and then I have the ridiculously long time they allow), but back when I did have a job, I worked on paying down monthly accrued interest and a small amount of principal.
- My 2007 tax return was for about $7,000 in income. (I consider this quite good for a no-skill summer job, but the point is that current debt, technically, outweighs my annual income. Further, I don't even have the job anymore.)
Also, I was turned down for an auto loan a couple years ago. (I had about $13,000 in the bank, and was seeking to buy a car for about that amount, but my mom convinced me I should try for a loan to build credit rating. So I applied for a $4,000 loan and was turned down.)
As I understand it, applying for a credit card and getting turned down would hurt my credit further. I almost signed up for the Costco AmEx card, but this thread got me worried about AmEx's apparent obsession with putting accounts under "financial review" at inopportune times and demanding years of financial data. If your answer is that I should apply for a card now, I'm also soliciting recommendations for a company that doesn't seek to cheat me too badly. I should note that, because I hate spending money I don't have, I expect to pay cards off in full, so I'm actually not too sensitive to interest rates.
I have no military links, so USAA is out. And thanks for reading this far; this came out to be a long one!
I'm an unemployed college student. I'm due to graduate in May, and currently have no job since I'm a full-time student. (I'm looking for "real" jobs for when I graduate.) I'll delve into (much) more detail in a minute, but the basic gist is that people keep telling me I need to get a "real" credit card to build history, but I think now may be a bad time.
I should also disclaim that I'm extremely contemptuous and distrusting of the credit industry. I believe that they, as an industry, have gone out of their way to exploit people with financial problems; I find it repulsive that they're exempt from usury laws; I'm yet to find a credit card company that doesn't engage in one sleazy practice or another. More than anything, though, I have major issues with credit reporting: I never asked to be put in a database with some random third-party group, and I think my financial data is the last thing in the world they have a right to know anything about. I realize that it's very helpful to banks, but that doesn't appease me. Not only is it a (creepy) invasion of my privacy, but I have major issues with them being the definitive word on whether I'm creditworthy or not. (It'd be like if I spontaneously declared that I was the "Job Rating Bureau" and kept files on every person in America, every time they've been disciplined at work, every place they ever worked, for how long, and also reported when people applied for jobs. And then, when someone went to apply for a job, the company would contact me to ask what I thought of them. Oh, and employees could only see my ranking of them once a year. And that's only because Congress forced my hand.)</rant>
So I acknowledge that some of my reluctance is that opening a credit card is "giving in" and playing by their rules. But I also think it just doesn't make sense at this point in my life:
- I have no job. I last had a job this past summer.
- I have about $2,000 to my name. It's in a local credit union, which has also issued me a (Visa-branded) "check card," which works as both a debit card and an ATM. The money just comes out of my checking account. This works very well for me.
- I have around $10,000 in student loans. I consider myself pretty prudent in this regard: they don't officially become payable until I graduate (and then I have the ridiculously long time they allow), but back when I did have a job, I worked on paying down monthly accrued interest and a small amount of principal.
- My 2007 tax return was for about $7,000 in income. (I consider this quite good for a no-skill summer job, but the point is that current debt, technically, outweighs my annual income. Further, I don't even have the job anymore.)
Also, I was turned down for an auto loan a couple years ago. (I had about $13,000 in the bank, and was seeking to buy a car for about that amount, but my mom convinced me I should try for a loan to build credit rating. So I applied for a $4,000 loan and was turned down.)
As I understand it, applying for a credit card and getting turned down would hurt my credit further. I almost signed up for the Costco AmEx card, but this thread got me worried about AmEx's apparent obsession with putting accounts under "financial review" at inopportune times and demanding years of financial data. If your answer is that I should apply for a card now, I'm also soliciting recommendations for a company that doesn't seek to cheat me too badly. I should note that, because I hate spending money I don't have, I expect to pay cards off in full, so I'm actually not too sensitive to interest rates.
I have no military links, so USAA is out. And thanks for reading this far; this came out to be a long one!
I got one when I was unemployed and never ran into trouble with it. It's worth it for the convenience and for building a credit rating. If you're going to get one, get one without an annual fee, and get one with reward points. I have a "dividend" card, which gives me a percentage of my total spending back at the end of the year. In 2007 I got $150 back on mine last year, never paid a dime in interest all year, and had an easy way to pay for large items such as having my roof reshingled.
posted by orange swan at 9:41 PM on March 14, 2008
posted by orange swan at 9:41 PM on March 14, 2008
Oh yeah - and these days travel without a credit card is damn near impossible.
posted by orange swan at 9:42 PM on March 14, 2008
posted by orange swan at 9:42 PM on March 14, 2008
I would recommend getting a credit card sooner rather than later.
Don't buy things you can't pay off at the end of the month, but get a credit card.
I had very similar savings/student loan/income situation as you. I also used the debit/check card thing. Speaking from experience, I wish I had gotten one during college, to build my credit history.
I waited until I had been working full-time, in a wall st tech job for a few months. Despite my decent starting salary, I was given an shockingly low credit limit. I was essentially paying the thing off 2-3 times a month, so I could get my available credit back up. Not a fun situation.
I was so frustrated that 2 months later I got a second card, with Amex, as I had heard good things.
Amex gave me a much better (though 'hidden') credit limit, though still low enough to be a hassle for 'big' purchases like tv, computer, etc.
Also, those check card things are scary with regards to what happens if its stolen, far more so than credit cards.
Since the money is instantly debited out of your account.. its gone, until you report the issue, and the bank investigates and credits you... 2-3 business days later.
posted by gomess at 9:45 PM on March 14, 2008
Don't buy things you can't pay off at the end of the month, but get a credit card.
I had very similar savings/student loan/income situation as you. I also used the debit/check card thing. Speaking from experience, I wish I had gotten one during college, to build my credit history.
I waited until I had been working full-time, in a wall st tech job for a few months. Despite my decent starting salary, I was given an shockingly low credit limit. I was essentially paying the thing off 2-3 times a month, so I could get my available credit back up. Not a fun situation.
I was so frustrated that 2 months later I got a second card, with Amex, as I had heard good things.
Amex gave me a much better (though 'hidden') credit limit, though still low enough to be a hassle for 'big' purchases like tv, computer, etc.
Also, those check card things are scary with regards to what happens if its stolen, far more so than credit cards.
Since the money is instantly debited out of your account.. its gone, until you report the issue, and the bank investigates and credits you... 2-3 business days later.
posted by gomess at 9:45 PM on March 14, 2008
If you are responsible about always paying off the balance in full each month, get one. They're easy to get when you're in college. Charge $30/month or whatever you can definitely afford, and always pay it off. Within a year or two they will be raising your credit limit.
Having an entry with the big credit bureaus is creepy but it smooths the way for many little things -- even renting an apartment requires a credit check in many cities. So long as you are prudent about paying it off, and keeping your eye on the fine print, the benefits outweigh the drawbacks (IME).
There are a number of previous posts around here about least-scammy cards, and best reward-points cards; worth searching.
posted by LobsterMitten at 9:50 PM on March 14, 2008
Having an entry with the big credit bureaus is creepy but it smooths the way for many little things -- even renting an apartment requires a credit check in many cities. So long as you are prudent about paying it off, and keeping your eye on the fine print, the benefits outweigh the drawbacks (IME).
There are a number of previous posts around here about least-scammy cards, and best reward-points cards; worth searching.
posted by LobsterMitten at 9:50 PM on March 14, 2008
You're right to not trust the credit industry.
So no, don't get one yet. Wait a couple years after you've been working at a job -- you'll get one -- and have paid off your student loans.
I was in your situation ~11 years ago (oh my god has it been that long?), minus the loan refusal and plus the fact that I had a guaranteed job at graduation. I still waited two and a half years -- a year after I'd paid off my college loans -- before getting a real credit card.
Seriously, live on what you'll make at your job and also make loan repayment your highest priority. Your credit will build up PDQ after that. You'll benefit in the long run. I have.
posted by cog_nate at 9:54 PM on March 14, 2008
So no, don't get one yet. Wait a couple years after you've been working at a job -- you'll get one -- and have paid off your student loans.
I was in your situation ~11 years ago (oh my god has it been that long?), minus the loan refusal and plus the fact that I had a guaranteed job at graduation. I still waited two and a half years -- a year after I'd paid off my college loans -- before getting a real credit card.
Seriously, live on what you'll make at your job and also make loan repayment your highest priority. Your credit will build up PDQ after that. You'll benefit in the long run. I have.
posted by cog_nate at 9:54 PM on March 14, 2008
Get a credit card now. Students have special deals that you can't get as a lowly professional peon. The often will take your parents' earning power into consideration -- or at least I think they did mine -- when determining things like your credit limit. I've been able to establish very helathy credit simply by owning a credit card or two for 10 years. If you can risk it, allow the payment to be only partially paid some months (always pay at least 3-4 times the minimum though). If you always pay off the balance you are known as a "deadbeat" in the industry and your credit limit will stay low. Paradoxically, this means your credit score will be lower than someone who pays only part of their bill.
The number one thing to do is pay your bill every month and pay it on time. But the truth is late payments will usually only show up on your credit report after there have been two late payments in a row. If you think your payment will be late for any reason, or you realize that you missed the payment date, call the credit card company immediately. Let them know you are intending to send them payment and will have it for them as fast as you can. Ask if they can waive the late fee. Occasionally they will do this, especially once you have been their customer for a few years.
It almost doesn't matter "where" you get your credit card as nearly all of them are managed or run by a small handful of giant credit card corporations, most of whom have their corporate offices out of Delaware because in a fit of wisdom Delaware decided they would place no restrictions on the interests rates a company could charge a consumer nor limit the number or amount of fines that could be levied for any number of random infractions. It's a shame that there's little to recommend Delaware anyway, otherwise I could prove I was shunning the state out of principle rather than out of habit.
You will not get turned down for a credit card. And in fact having a credit card will enable you to develop the kind of credit that lets you get things like auto loans. If you *do* get rejected again, then there must be someting *bad* in your credit history -- something so bad that a credit card rejection won't make a difference.
You can even start out with a secured credit card. I know someone who went bankrupt and he had to start out with a secured credit card. After a while he was able to slowly build up his credit rating, was able to buy a real car (for years he had to buy clunkers because they were the only things he could afford on pure cash), and bought a house. The point is? You are not bankrupt, and you're a studnet, so there's no way in hell you're not going to be handed on a silver platter. I mean, it's an even bet for them. You're a college student, which means odds are good that you will eventually have a decent salary. As a student, you can be prone to spending a lot of money. They don't mind -- they get 2.5% every time you do so. And then, on top of it, there's the interest from the money you owe them. So long as you cover the minimum payment, which in turn covers their payment to the bank from whom they borrowed the corresponding money at a ridiculously low interest, they are making money off of you whether you pay off the loan or not.
During the great MBNA->Bank of America credit card switch of 2006, I contemplated dropping my credit cards and looked into socially responsible options. I didn't find any, but I can tell you that I have learned over the last year and a half that if you want the world's crappiest credit card provider, you can't do better than Bank of America. They are never fail to not exceed my expectations. But I do have to say: never have I encountered a friendlier group of incompetents.
If you have a good relationship with your credit union, I would see if they have a credit card in addition to their Visa check card. You could then probably easily link your credit card to your checking account, which means that the card could serve as overdraft protection (not sure whether your bank charges fees for that), and set up automatic payments from your checking or savings account.
So no, don't get one yet. Wait a couple years after you've been working at a job -- you'll get one -- and have paid off your student loans.
Why? It'll be much, much easier to get the card now than wait until they have a job. Students often get special deals, and if the poster is responsible with their spending and in paying off the card, it will only benefit them. And definitely don't wait until you've paid off your student loans...interest rates are low and now is a good time to consolidate the loans. At 3.5% or 4% interest, it makes sense to go ahead and take a longer payment period..it was *hard* budgeting around the old loan payments, easy around the new payments, and the total interest at the end will be about the same. If I had to wait until my student loans were paid off to get a credit card, I would either have to eat ramen for 3 years or wait until I was 40 to have sufficient credit to buy a house. As it stands, I have 3 credit cards, none of which I'm behind on (although that does happen sometimes, but if you keep up with it that still only costs you $20-40/year which is not horrible considering it *is* a loan they are giving you) and my credit score is, let's just say, remarkable.
posted by Deathalicious at 10:15 PM on March 14, 2008 [2 favorites]
The number one thing to do is pay your bill every month and pay it on time. But the truth is late payments will usually only show up on your credit report after there have been two late payments in a row. If you think your payment will be late for any reason, or you realize that you missed the payment date, call the credit card company immediately. Let them know you are intending to send them payment and will have it for them as fast as you can. Ask if they can waive the late fee. Occasionally they will do this, especially once you have been their customer for a few years.
It almost doesn't matter "where" you get your credit card as nearly all of them are managed or run by a small handful of giant credit card corporations, most of whom have their corporate offices out of Delaware because in a fit of wisdom Delaware decided they would place no restrictions on the interests rates a company could charge a consumer nor limit the number or amount of fines that could be levied for any number of random infractions. It's a shame that there's little to recommend Delaware anyway, otherwise I could prove I was shunning the state out of principle rather than out of habit.
You will not get turned down for a credit card. And in fact having a credit card will enable you to develop the kind of credit that lets you get things like auto loans. If you *do* get rejected again, then there must be someting *bad* in your credit history -- something so bad that a credit card rejection won't make a difference.
You can even start out with a secured credit card. I know someone who went bankrupt and he had to start out with a secured credit card. After a while he was able to slowly build up his credit rating, was able to buy a real car (for years he had to buy clunkers because they were the only things he could afford on pure cash), and bought a house. The point is? You are not bankrupt, and you're a studnet, so there's no way in hell you're not going to be handed on a silver platter. I mean, it's an even bet for them. You're a college student, which means odds are good that you will eventually have a decent salary. As a student, you can be prone to spending a lot of money. They don't mind -- they get 2.5% every time you do so. And then, on top of it, there's the interest from the money you owe them. So long as you cover the minimum payment, which in turn covers their payment to the bank from whom they borrowed the corresponding money at a ridiculously low interest, they are making money off of you whether you pay off the loan or not.
During the great MBNA->Bank of America credit card switch of 2006, I contemplated dropping my credit cards and looked into socially responsible options. I didn't find any, but I can tell you that I have learned over the last year and a half that if you want the world's crappiest credit card provider, you can't do better than Bank of America. They are never fail to not exceed my expectations. But I do have to say: never have I encountered a friendlier group of incompetents.
If you have a good relationship with your credit union, I would see if they have a credit card in addition to their Visa check card. You could then probably easily link your credit card to your checking account, which means that the card could serve as overdraft protection (not sure whether your bank charges fees for that), and set up automatic payments from your checking or savings account.
So no, don't get one yet. Wait a couple years after you've been working at a job -- you'll get one -- and have paid off your student loans.
Why? It'll be much, much easier to get the card now than wait until they have a job. Students often get special deals, and if the poster is responsible with their spending and in paying off the card, it will only benefit them. And definitely don't wait until you've paid off your student loans...interest rates are low and now is a good time to consolidate the loans. At 3.5% or 4% interest, it makes sense to go ahead and take a longer payment period..it was *hard* budgeting around the old loan payments, easy around the new payments, and the total interest at the end will be about the same. If I had to wait until my student loans were paid off to get a credit card, I would either have to eat ramen for 3 years or wait until I was 40 to have sufficient credit to buy a house. As it stands, I have 3 credit cards, none of which I'm behind on (although that does happen sometimes, but if you keep up with it that still only costs you $20-40/year which is not horrible considering it *is* a loan they are giving you) and my credit score is, let's just say, remarkable.
posted by Deathalicious at 10:15 PM on March 14, 2008 [2 favorites]
Especially if you plan not to really use it, as a student is a good time to get the card. As a student, I was constantly offered cards that came with free t-shirts. As soon as I got out of school and applied for a card based on my more than adequate starting salary, I was turned down repeatedly -- including by my own bank where I had tens of thousands of dollars on deposit.
With your healthy distrust of the credit card industry, I think you're in a good position to get the card and then not use it for much of anything, paying it off each month and building that credit rating. However much you loathe the idea of credit reporting agencies, if you don't build some credit history, you're never going to own a house.
posted by jacquilynne at 10:23 PM on March 14, 2008
With your healthy distrust of the credit card industry, I think you're in a good position to get the card and then not use it for much of anything, paying it off each month and building that credit rating. However much you loathe the idea of credit reporting agencies, if you don't build some credit history, you're never going to own a house.
posted by jacquilynne at 10:23 PM on March 14, 2008
You should definitely get one and start building credit as others have said. It is very wise to distrust the credit card companies so that's a plus for you. The main idea is to NOT think of your card as loan money. Only use it for stuff you can already afford just to build credit. A few things to watch out for:
1. Be wary of the payment deadline the first couple years. Some banks try to take advantage naive college students who aren't used to monthly bills. They will change the deadline month-to-month so if you get into a good rhythm, you may still miss the date and receive a late fee.
2. Low APRs are important, but you should rarely have to deal with them. Get in a good habit of only using your credit card when you already have enough cash in the bank for it. Again, do NOT think of credit cards as loan money. The only times you should go into debt with a credit card is if you unexpectedly unemployed or have some other major tragedy/health issue.
3. rewards are great, but don't fall for one that looks good, but really gives you know real benefit like flights with limited destinations and/or dates. A lot of cards give something like 5% cash-back on gas. If you drive a lot and have a low mpg vehicle you may spend $2000+ a year on gas. That's $100 you'll get back. I just prefer a general 1% cash-back that comes with many cards as I use my card for everything. Discover and American Express gives some good rewards, but I wouldn't recommend them due to their limited availability. Although that depends on how much you plan to use the card.
4. Check your credit report once per year. AnnualCreditReport.com is one with a free yearly support I believe. When you become employed check if your employee offers free credit monitoring which will alert you to any odd things that are happening with your report.
5. A great thing about credit cards is the transaction history that comes with them. This saves you from losing receipts and gives you a LOT more clout when it comes to challenging erroneous charges. Often your bank will handle them for you.
posted by Hypharse at 10:42 PM on March 14, 2008
1. Be wary of the payment deadline the first couple years. Some banks try to take advantage naive college students who aren't used to monthly bills. They will change the deadline month-to-month so if you get into a good rhythm, you may still miss the date and receive a late fee.
2. Low APRs are important, but you should rarely have to deal with them. Get in a good habit of only using your credit card when you already have enough cash in the bank for it. Again, do NOT think of credit cards as loan money. The only times you should go into debt with a credit card is if you unexpectedly unemployed or have some other major tragedy/health issue.
3. rewards are great, but don't fall for one that looks good, but really gives you know real benefit like flights with limited destinations and/or dates. A lot of cards give something like 5% cash-back on gas. If you drive a lot and have a low mpg vehicle you may spend $2000+ a year on gas. That's $100 you'll get back. I just prefer a general 1% cash-back that comes with many cards as I use my card for everything. Discover and American Express gives some good rewards, but I wouldn't recommend them due to their limited availability. Although that depends on how much you plan to use the card.
4. Check your credit report once per year. AnnualCreditReport.com is one with a free yearly support I believe. When you become employed check if your employee offers free credit monitoring which will alert you to any odd things that are happening with your report.
5. A great thing about credit cards is the transaction history that comes with them. This saves you from losing receipts and gives you a LOT more clout when it comes to challenging erroneous charges. Often your bank will handle them for you.
posted by Hypharse at 10:42 PM on March 14, 2008
You are overthinking this to a degree that some (Me!) might call ridiculous. Apply for a card marketed as a student credit card, use it to make the occasional purchase, and pay it off the same month at no penalty. Good grief. As far as that rant goes, it seems to overlook the fact that these companies are providing an actual, significant service in exchange for those tradeoffs, easy access to loans without question whenever you need it.
And marry someone in the military, or get one of your parents to enlist. USAA is the shit.
posted by 1 at 11:00 PM on March 14, 2008 [1 favorite]
And marry someone in the military, or get one of your parents to enlist. USAA is the shit.
posted by 1 at 11:00 PM on March 14, 2008 [1 favorite]
If you can risk it, allow the payment to be only partially paid some months (always pay at least 3-4 times the minimum though). If you always pay off the balance you are known as a "deadbeat" in the industry and your credit limit will stay low.
I would avoid trying to get clever to game your credit score. Plan to just pay off the card in full every month. I've done this for the many-year life of my one credit card, and my credit limit right now is more than twice my annual income. Being human, you will probably screw up once anyway, so you don't have to plan to leave a balance on the card to try to improve your credit score. Whatever you do, be SURE to always pay the minimum payment by the due date -- if you don't, it's bad news, big fees, changes your interest rate, etc.
posted by LobsterMitten at 11:03 PM on March 14, 2008
I would avoid trying to get clever to game your credit score. Plan to just pay off the card in full every month. I've done this for the many-year life of my one credit card, and my credit limit right now is more than twice my annual income. Being human, you will probably screw up once anyway, so you don't have to plan to leave a balance on the card to try to improve your credit score. Whatever you do, be SURE to always pay the minimum payment by the due date -- if you don't, it's bad news, big fees, changes your interest rate, etc.
posted by LobsterMitten at 11:03 PM on March 14, 2008
Best answer: It is actually easier to get a credit card as a college student with no credit history than as an employed person with no credit history. Look for cards marketed to college students.
You need to start building a credit history ASAP if you want a good credit score to qualify for low mortgage rates later. Most people need a mortgage to buy a home, and buying a home is a good financial move for most people, and length of credit history is part of your credit score. So even if you aren't planning on buying a house anytime soon, what you do or don't do now will affect you for the rest of your life!
You should seek to eventually acquire about 4 credit cards. If you are wary of using them, one of the best things you can do for your credit score is set them up so that a small monthly bill (insurance, cell phone, cable, etc.) auto-bills to each credit card, and then set up each credit card to auto-pay from your checking account. Then sock drawer the cards. That way you are building a good payment history with low utilization, without spending any differently than if you had these monthly bills auto-paid from your checking account. If you get cards with no annual rates and your checking account pays interest, you will actually make a small amount of money off this because of the float between when the bill is charged to your credit card and when the credit card bill is paid by your checking account.
I strongly recommend that you read the book Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future to learn how to play the credit game to your advantage. I also recommend Personal Finance for Dummies as an excellent general financial literacy book.
posted by Jacqueline at 11:11 PM on March 14, 2008
You need to start building a credit history ASAP if you want a good credit score to qualify for low mortgage rates later. Most people need a mortgage to buy a home, and buying a home is a good financial move for most people, and length of credit history is part of your credit score. So even if you aren't planning on buying a house anytime soon, what you do or don't do now will affect you for the rest of your life!
You should seek to eventually acquire about 4 credit cards. If you are wary of using them, one of the best things you can do for your credit score is set them up so that a small monthly bill (insurance, cell phone, cable, etc.) auto-bills to each credit card, and then set up each credit card to auto-pay from your checking account. Then sock drawer the cards. That way you are building a good payment history with low utilization, without spending any differently than if you had these monthly bills auto-paid from your checking account. If you get cards with no annual rates and your checking account pays interest, you will actually make a small amount of money off this because of the float between when the bill is charged to your credit card and when the credit card bill is paid by your checking account.
I strongly recommend that you read the book Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future to learn how to play the credit game to your advantage. I also recommend Personal Finance for Dummies as an excellent general financial literacy book.
posted by Jacqueline at 11:11 PM on March 14, 2008
I would definitely recommend pursuing a credit card with your credit union, if they have one. As mentioned up-thread, it's much easier to set up automatic payments/overdraft protection, you only have to deal with one customer service system for monetary issues, and credit unions (in my experience) are just... nicer, in general. You're not a pawn in some monolithic corporation and it connects you to a community (whether it's local or a particular trade); you probably won't have access to 24-hour customer service, but that's not too bad.
posted by sarahsynonymous at 11:14 PM on March 14, 2008
posted by sarahsynonymous at 11:14 PM on March 14, 2008
Best answer: Do you plan to live in America in the 21st century as something other than a farm laborer or a recluse?
You need a credit card. Yeah, they have you by the short hairs. So does the government, and Google. Get used to it, or move to the wilderness.
You absolutely cannot travel efficiently in the US without a credit card.
posted by fourcheesemac at 11:53 PM on March 14, 2008
You need a credit card. Yeah, they have you by the short hairs. So does the government, and Google. Get used to it, or move to the wilderness.
You absolutely cannot travel efficiently in the US without a credit card.
posted by fourcheesemac at 11:53 PM on March 14, 2008
If you decide to shop through the web, it's commonly regarded as much better to purchase using a credit card than through other means (like PayPal). You could try just sending checks, but there are significant drawbacks to that approach. Also, the credit card does usually offer some buyers' protection that I find reassuring in my web shopping experiences.
It's really convenient once you memorize all the numbers, too...
posted by amtho at 11:53 PM on March 14, 2008
It's really convenient once you memorize all the numbers, too...
posted by amtho at 11:53 PM on March 14, 2008
If your responsible sure, do it. I'm not as gungho on credit as every here seems to be. I know people who use very little credit. But it takes work. But remember, many, many students get in trouble with credit cards. So if you think there's any chance that could be you, wait. You'll have plenty of time to build your credit despite what is being said here. And until then, you can live without it. Don't fall for the hype you're reading here. Getting out of college and getting a good job is much more desirable than getting out of college with multiple credit cards maxed out, and it happens all the time.
One last point. These comments:
Oh yeah - and these days travel without a credit card is damn near impossible.
posted by orange swan
You absolutely cannot travel efficiently in the US without a credit card.
posted by fourcheesemac
Are complete bullshit and laughable. I travel often not only in the U.S. but europe also. I rarely if ever use a credit card. The only trouble I have with debit cards is car rentals, and that's rarely now that I know what companies accept what.
Is it slightly easier with a credit card? Sure. Is it worth it if you think you'll get over your head? No.
posted by Dennis Murphy at 3:30 AM on March 15, 2008
One last point. These comments:
Oh yeah - and these days travel without a credit card is damn near impossible.
posted by orange swan
You absolutely cannot travel efficiently in the US without a credit card.
posted by fourcheesemac
Are complete bullshit and laughable. I travel often not only in the U.S. but europe also. I rarely if ever use a credit card. The only trouble I have with debit cards is car rentals, and that's rarely now that I know what companies accept what.
Is it slightly easier with a credit card? Sure. Is it worth it if you think you'll get over your head? No.
posted by Dennis Murphy at 3:30 AM on March 15, 2008
I have had an American Express Blue Rewards credit card since my freshman year of college. I pay it off every month and it has served me well. Compared to the other credit card companies I have had dealt with, Amex has been the best. Charges that I dispute are immediately taken off my account and stay off. I am a customer for life because of their incredible extended warranty program. Basically they double the warranty, up to one year, on eligible items charged entirely to the card. So far the program has replaced a failed optical drive on an old laptop ($400) and replaced the LCD on my last laptop ($700). Then, when the LCD started having issues again, they wrote the whole thing off and refunded me the full cost of the laptop.
As profit-driven and vicious as the credit industry may seem, I think that ultimately it is up to consumers to understand the boundaries of their spending and the concept of credit. I guess that the consumers who fall into the trap of using credit as cash are the ones who help to subsidize the perks enjoyed by responsible users of credit.
posted by roomwithaview at 4:27 AM on March 15, 2008
As profit-driven and vicious as the credit industry may seem, I think that ultimately it is up to consumers to understand the boundaries of their spending and the concept of credit. I guess that the consumers who fall into the trap of using credit as cash are the ones who help to subsidize the perks enjoyed by responsible users of credit.
posted by roomwithaview at 4:27 AM on March 15, 2008
I have a Visa debit card from my credit union. Because it's a Visa card, I have never had it turned down when buying things "on credit". I don't give two hoots about my credit rating, because having a good credit rating is only important if you plan to go heavily into debt, and that's something I have never found a need to do. I'm 46. The biggest debt I've ever taken on is the $30k mortgage I took out so I could afford to buy both the house I'm living in now and the two acres out the back. I got the mortgage from my credit union. Because I've done all my banking with that credit union for the last twenty years, I had no trouble at all getting that mortgage. I've been paying it back ahead of schedule for a while, so I am now able to redraw on it, which effectively allows me to borrow for whatever at home loan rates rather than credit card rates, which means I can use my Visa debit card much like a very cheap credit card should the need arise.
It is not obligatory to be in debt.
posted by flabdablet at 4:42 AM on March 15, 2008
It is not obligatory to be in debt.
posted by flabdablet at 4:42 AM on March 15, 2008
Best answer: Get a student card, because it will be harder to qualify when you actually have an income. Charge $20 a month, pay it immediately, and don't cancel the card even if you stop using it, because it adds to the length of your history.
I have no debt and haven't used credit cards in 9 years. The credit bureaus claim I have "no history" even though I had a mortgage 10 years ago. Because I live within my means, I'm considered a risk. It's absurd but it's how it works.
For what it's worth, I also have had no problems traveling domestically and internationally with just one debit card. The only hassle was the big security-deposit withdrawal made by a car rental place.
posted by PatoPata at 6:53 AM on March 15, 2008
I have no debt and haven't used credit cards in 9 years. The credit bureaus claim I have "no history" even though I had a mortgage 10 years ago. Because I live within my means, I'm considered a risk. It's absurd but it's how it works.
For what it's worth, I also have had no problems traveling domestically and internationally with just one debit card. The only hassle was the big security-deposit withdrawal made by a car rental place.
posted by PatoPata at 6:53 AM on March 15, 2008
Best answer: Yikes, I never cease to be astounded at the amount of bad advice given here on matters of credit.
1) Get a credit card, but not a student credit card. NEVER get anything marketed to students. That's asking to be taken advantage of. You have no income, moderate debt, and very little savings. Anything you would qualify for would be a scam set up to take advantage of poor young.
2) Don't get a credit card until you have job. Seriously.
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
4) Get a card from your credit union. They're always the best option (other than USAA) as they have less of an incentive to screw you than BoA or Citi or whatever kind of evil banking empire you despise so much.
Your credit union may actually have a special program for young people to build their credit, look into it. If you get a secured card and pay off the balance in full every month along with your student loans, you will qualify for a real credit card at a low interest rate in no time.
Just remember, the credit industry doesn't make money on people borrowing responsibly. They have an incentive to set you up for failure... don't fall for their trap.
Good luck!
posted by willie11 at 7:51 AM on March 15, 2008 [1 favorite]
1) Get a credit card, but not a student credit card. NEVER get anything marketed to students. That's asking to be taken advantage of. You have no income, moderate debt, and very little savings. Anything you would qualify for would be a scam set up to take advantage of poor young.
2) Don't get a credit card until you have job. Seriously.
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
4) Get a card from your credit union. They're always the best option (other than USAA) as they have less of an incentive to screw you than BoA or Citi or whatever kind of evil banking empire you despise so much.
Your credit union may actually have a special program for young people to build their credit, look into it. If you get a secured card and pay off the balance in full every month along with your student loans, you will qualify for a real credit card at a low interest rate in no time.
Just remember, the credit industry doesn't make money on people borrowing responsibly. They have an incentive to set you up for failure... don't fall for their trap.
Good luck!
posted by willie11 at 7:51 AM on March 15, 2008 [1 favorite]
Best answer: I was turned down for an auto loan a couple years ago
This is why you might want a credit card.
About your "Job Rating Bureau" example. An employer can always fire you. But a financial institution can't "unloan" you money.
Now that banks aren't run by village neighbors that knew your family since you were a kid anymore, your credit history is the only way a financial institution, or landlord, can gauge you. They're here to make money, they're trusting they money in your hands and they want some sort of proof that you'll pay them back.
I've had a credit card since i was in college, only ever used when I knew I had the money - or I knew I would be having it by the time the bill came in. Always paid in full. I have two cards, different institutions, just in case one wasn't accepted somewhere, only found that useful in Peru though.
One use of credit card I like is for all those subscription services where they require the payment to be automatically taken from your account. I don't like company taking money straight in my bank account, so those things are charged to my credit card. That way if something's wrong in the billing, it can be sorted without money leaving my bank account in the first place.
You don't have to get one, but if you plan on seeking loans later, I would help your credit score. And don't force yourself to use it regularly.
posted by domi_p at 7:55 AM on March 15, 2008
This is why you might want a credit card.
About your "Job Rating Bureau" example. An employer can always fire you. But a financial institution can't "unloan" you money.
Now that banks aren't run by village neighbors that knew your family since you were a kid anymore, your credit history is the only way a financial institution, or landlord, can gauge you. They're here to make money, they're trusting they money in your hands and they want some sort of proof that you'll pay them back.
I've had a credit card since i was in college, only ever used when I knew I had the money - or I knew I would be having it by the time the bill came in. Always paid in full. I have two cards, different institutions, just in case one wasn't accepted somewhere, only found that useful in Peru though.
One use of credit card I like is for all those subscription services where they require the payment to be automatically taken from your account. I don't like company taking money straight in my bank account, so those things are charged to my credit card. That way if something's wrong in the billing, it can be sorted without money leaving my bank account in the first place.
You don't have to get one, but if you plan on seeking loans later, I would help your credit score. And don't force yourself to use it regularly.
posted by domi_p at 7:55 AM on March 15, 2008
Credit industry rantings aside...
Student cards are no more a scam than any other credit card. They just don't have income requirements for unsecured cards. Lack of job income, especially for college students, is not necessarily lack of money--if you have enough money (from student loans or wherever else) to make debit purchases, you have enough to make credit purchases. If you use your credit card like a debit card and spend only what you actually can pay in full at the end of the month, you will not go into debt.
I am a student with plenty of credit available (thanks to chasing sign-up bonuses), usually using one credit card at a time which I always pay in full, and I have no trouble with being thought of as a "deadbeat." That would be a problem with subprime issuers... the kinds you'll probably run into if you're getting a secured card.
If you are responsible, you will make money by using no-annual-fee credit cards. They will not magically force you to live beyond your means or go into debt.
posted by deeaytch at 8:19 AM on March 15, 2008
Student cards are no more a scam than any other credit card. They just don't have income requirements for unsecured cards. Lack of job income, especially for college students, is not necessarily lack of money--if you have enough money (from student loans or wherever else) to make debit purchases, you have enough to make credit purchases. If you use your credit card like a debit card and spend only what you actually can pay in full at the end of the month, you will not go into debt.
I am a student with plenty of credit available (thanks to chasing sign-up bonuses), usually using one credit card at a time which I always pay in full, and I have no trouble with being thought of as a "deadbeat." That would be a problem with subprime issuers... the kinds you'll probably run into if you're getting a secured card.
If you are responsible, you will make money by using no-annual-fee credit cards. They will not magically force you to live beyond your means or go into debt.
posted by deeaytch at 8:19 AM on March 15, 2008
Best answer: If it makes you feel better about "giving in" to the credit card industry-- if you're disciplined enough to only charge what you can pay off each month, or not charge much/at all, then they won't be making much profit off of you. And if you get a cash-back card where they give you 1% back on your purchases, they may be losing money on you. (Find a no-annual-fee card, of course!) They make the big bucks off people who carry large balances and have to pay interest, people paying late fees, etc. So you can think of yourself as stickin' it to them by using their system to benefit yourself. (At least that's what I tell myself!)
I have heard many many times the advice that it's easier to get a card while still a student than after you graduate. I got a card as a student with no credit history and next-to-no-income with no problems-- I have no idea if it's really as hard as suggested to get one after you graduate, but it is certainly "conventional wisdom" to get one while still a student.
posted by EmilyClimbs at 9:53 AM on March 15, 2008
I have heard many many times the advice that it's easier to get a card while still a student than after you graduate. I got a card as a student with no credit history and next-to-no-income with no problems-- I have no idea if it's really as hard as suggested to get one after you graduate, but it is certainly "conventional wisdom" to get one while still a student.
posted by EmilyClimbs at 9:53 AM on March 15, 2008
1) Get a credit card, but not a student credit card. NEVER get anything marketed to students. That's asking to be taken advantage of. You have no income, moderate debt, and very little savings. Anything you would qualify for would be a scam set up to take advantage of poor young.
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
If getting a card marketed at a student is an inevitable scam, how can you also advocate getting a secured card? Things marketed specifically at poor people or bad credit risks are going to suck just as hard and possibly harder than things marketed at students.
posted by jacquilynne at 10:39 AM on March 15, 2008
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
If getting a card marketed at a student is an inevitable scam, how can you also advocate getting a secured card? Things marketed specifically at poor people or bad credit risks are going to suck just as hard and possibly harder than things marketed at students.
posted by jacquilynne at 10:39 AM on March 15, 2008
jacquilynne: Students are both poor and bad credit risks.
Secured credit cards are an excellent, and sometimes the only, way to build up your credit as a young person with little savings and no real credit history. Get in to trouble with one of these and you have the initial deposit to fall back on. No scam.
Get one from a credit union and eventually you will qualify for one of their credit cards, probably at a much better rate than you're being offered now with the benefit of a newly improved credit score thanks to your successful record of payment on the student and secured credit card lines of credit. Bonus, you're outside of the evil credit industry. And if you want to get a card from Citi, then go for it. They'll be pounding at your door after a year of timely payments.
I guess the point I'm failing to make is, you don't need a credit card right now and probably wouldn't qualify for a very good one. So why not start with a secured card from your credit union that will guarantee you a better rate on a card in the future and improve your credit score with minimal risk?
posted by willie11 at 11:09 AM on March 15, 2008
Secured credit cards are an excellent, and sometimes the only, way to build up your credit as a young person with little savings and no real credit history. Get in to trouble with one of these and you have the initial deposit to fall back on. No scam.
Get one from a credit union and eventually you will qualify for one of their credit cards, probably at a much better rate than you're being offered now with the benefit of a newly improved credit score thanks to your successful record of payment on the student and secured credit card lines of credit. Bonus, you're outside of the evil credit industry. And if you want to get a card from Citi, then go for it. They'll be pounding at your door after a year of timely payments.
I guess the point I'm failing to make is, you don't need a credit card right now and probably wouldn't qualify for a very good one. So why not start with a secured card from your credit union that will guarantee you a better rate on a card in the future and improve your credit score with minimal risk?
posted by willie11 at 11:09 AM on March 15, 2008
Many secured cards are, in fact, a scam -- with mandatory insurance and fees up the ying-yang.
posted by jacquilynne at 11:19 AM on March 15, 2008
posted by jacquilynne at 11:19 AM on March 15, 2008
willie11: "Yikes, I never cease to be astounded at the amount of bad advice given here on matters of credit.
1) Get a credit card, but not a student credit card. NEVER get anything marketed to students. That's asking to be taken advantage of. You have no income, moderate debt, and very little savings. Anything you would qualify for would be a scam set up to take advantage of poor young.
The scam is, he's a student, and once he has access to a line of credit the theory is he will use it, go into debt, and become beholden to the credit card company. Student credit cards are fine and it is much, much harder to get a decent credit card once you are no longer a student. I just don't know how much we can belabor the point. I'm overjoyed you found it easy to get a credit card while not in college, but I am telling you that it is very difficult for many people. Once he is out of college, assuming he has no debt on his card he can get a second, non-student card and cancel the old one, if necessary. I still have the card I got as a student and it is now a very respectable platinum visa.
2) Don't get a credit card until you have job. Seriously.
You don't need a job, just income/money. He was able to make around $7k last year, which is not *that* bad for a full time student who is *probably* not covering shelter or tuition out of pocket right now. If he can keep his credit card expenses to just $200/month that is way under his income and no problem at all.
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
Secured credit cards suck. It requires you to have a certain amount of money stashed away and if you need that cash all of a sudden you're stuck. Much better to just have a normal non-secured credit card and use it responsibly.
posted by Deathalicious at 12:12 PM on March 15, 2008
1) Get a credit card, but not a student credit card. NEVER get anything marketed to students. That's asking to be taken advantage of. You have no income, moderate debt, and very little savings. Anything you would qualify for would be a scam set up to take advantage of poor young.
The scam is, he's a student, and once he has access to a line of credit the theory is he will use it, go into debt, and become beholden to the credit card company. Student credit cards are fine and it is much, much harder to get a decent credit card once you are no longer a student. I just don't know how much we can belabor the point. I'm overjoyed you found it easy to get a credit card while not in college, but I am telling you that it is very difficult for many people. Once he is out of college, assuming he has no debt on his card he can get a second, non-student card and cancel the old one, if necessary. I still have the card I got as a student and it is now a very respectable platinum visa.
2) Don't get a credit card until you have job. Seriously.
You don't need a job, just income/money. He was able to make around $7k last year, which is not *that* bad for a full time student who is *probably* not covering shelter or tuition out of pocket right now. If he can keep his credit card expenses to just $200/month that is way under his income and no problem at all.
3) If you still have that savings once you've graduated and found a job (a big IF), get a secured ($500-$1,000 up front) credit card.
Secured credit cards suck. It requires you to have a certain amount of money stashed away and if you need that cash all of a sudden you're stuck. Much better to just have a normal non-secured credit card and use it responsibly.
posted by Deathalicious at 12:12 PM on March 15, 2008
Another concern about a secured card: If it's reported as a secured card to the credit bureaus, then it says "Bad credit risk--had to resort to a secured card." If you go for a secured card, make sure it pretends to be a normal credit card. Apparently these exist, but I don't know of any. I got a retail card (easy to get) and will start rebuilding that way.
posted by PatoPata at 12:49 PM on March 15, 2008
posted by PatoPata at 12:49 PM on March 15, 2008
Why do you think credit card companies set up tents on the quad? Is it because they want to see you succeed? No! They want you get a credit card, spend spend spend while you're on the government or mommy/daddy's dime and then when graduation rolls around and the job offers don't come rolling in like you thought they would, you miss a few payments and POW, interest rates go through the roof. They prey on the vulnerable. EVIL.fucking.credit.companies.
The way to beat the credit industry is to play the game better than them. Stay conservative. Build credit responsibly with the least amount of risk. Pay off your bills in full. Use a credit union. Keep your low interest student loans running for as long as you like because a little bit of debt is a good thing. Do that and you'll be good. As you learned from the auto loan, it's not about how much money you have, it's about a history of repayment.
Just remember, secured or not, go with a credit union. They're good people and not out to screw you like the folks in the BankofAmerica tent on the quad.
PatoPata: No, it doesn't. The point of a secured card in most instances is to build up a record of payment on a line of credit. Some secured credit cards don't report to agencies at all. But those should be avoided since you loose the major benefit of the card in the first place. There are lots of scam secured credit cards out there to be wary of. Go with the credit union to avoid that.
Deathalicious: The money required doesn't go away, it's your line of credit that you can use whenever you'd like and sometimes you get a percentage above what you put in. The money you put up front, which he says he has, is put in to an interest bearing account similar to a savings account. The secure card will also have a lower interest rate and quickly roll over in to a low interest unsecured credit card with a higher limit if payments are made on time.
posted by willie11 at 1:45 PM on March 15, 2008
The way to beat the credit industry is to play the game better than them. Stay conservative. Build credit responsibly with the least amount of risk. Pay off your bills in full. Use a credit union. Keep your low interest student loans running for as long as you like because a little bit of debt is a good thing. Do that and you'll be good. As you learned from the auto loan, it's not about how much money you have, it's about a history of repayment.
Just remember, secured or not, go with a credit union. They're good people and not out to screw you like the folks in the BankofAmerica tent on the quad.
PatoPata: No, it doesn't. The point of a secured card in most instances is to build up a record of payment on a line of credit. Some secured credit cards don't report to agencies at all. But those should be avoided since you loose the major benefit of the card in the first place. There are lots of scam secured credit cards out there to be wary of. Go with the credit union to avoid that.
Deathalicious: The money required doesn't go away, it's your line of credit that you can use whenever you'd like and sometimes you get a percentage above what you put in. The money you put up front, which he says he has, is put in to an interest bearing account similar to a savings account. The secure card will also have a lower interest rate and quickly roll over in to a low interest unsecured credit card with a higher limit if payments are made on time.
posted by willie11 at 1:45 PM on March 15, 2008
Facts and Statistics
Students and Credit Cards:
* In 2001, fully 83% of all undergraduates had at least one credit card, with the average student carrying four.
* 71% of young adult cardholders do not pay off their balance in full each month compared to 55% of all cardholders.
* Balances among college student consumers have shot up 134% in the last decade.
* College seniors are graduating with an average of nearly $4,000 in credit card debt.
For some of the more odious practices that credit card companies use to take advantage of students, check out PIRG's webiste.
posted by willie11 at 2:47 PM on March 15, 2008
Students and Credit Cards:
* In 2001, fully 83% of all undergraduates had at least one credit card, with the average student carrying four.
* 71% of young adult cardholders do not pay off their balance in full each month compared to 55% of all cardholders.
* Balances among college student consumers have shot up 134% in the last decade.
* College seniors are graduating with an average of nearly $4,000 in credit card debt.
For some of the more odious practices that credit card companies use to take advantage of students, check out PIRG's webiste.
posted by willie11 at 2:47 PM on March 15, 2008
From Kiplinger's Your First Credit Card:
"Sometimes customers who have bad credit ratings or habitually bounce checks are forced to use secured credit cards, which can be a red flag to other credit issuers. To avoid tarring good applicants with the same brush, some lenders, including Capital One and Amalgamated, report all the cards they issue as unsecured. Before applying for a secured card, find out how it will be reported to the credit bureaus."
posted by PatoPata at 7:18 PM on March 16, 2008
"Sometimes customers who have bad credit ratings or habitually bounce checks are forced to use secured credit cards, which can be a red flag to other credit issuers. To avoid tarring good applicants with the same brush, some lenders, including Capital One and Amalgamated, report all the cards they issue as unsecured. Before applying for a secured card, find out how it will be reported to the credit bureaus."
posted by PatoPata at 7:18 PM on March 16, 2008
willie: absolutely zero of your statistics outline why a student credit card is worse than a normal credit card, only that students seem to be worse at handling them. If this guy is smart, getting a student card now is a good idea. I speak from personal experience when I say that student cards can be nice.
If you're interested in anecdotal evidence, I didn't even get into any kind of debt until I was *out* of college and had a job. In college your expenses are actually very low; they start piling up when you have things like an apartment, bills, clothes you have to buy for work, etc. I'm not proud of the debt I racked up (I still do it from time to time when I travel but pay it off in around 4-5 months using nice large monthly payments) but it is interesting to note that I wasn't in debt in college.
Also, again with the secured cards: my understanding is that to get a credit card with, say, a $500 line of credit, you basically have to give the credit card company $500 to hold. Then, when you buy things with the credit card, you still have to pay it back with your own cash, and the $500 stays in whatever the account is called.
Now, let's say I get a student card, with a nice $700 limit. I put zero dollars into a secured account. I pay it off every month, and I have around $1000 in my bank account any given month. In July, disaster strikes. I need $900. I take it out of my bank account, no big deal, I take a little while longer paying that month's credit card bill (i.e. I pay half of the balance rather than all of it), resulting in perhaps $5-8 interest charged. Now, let's say I got a $700 secured credit card. I now have $300 on average each month in the bank (because for people with small incomes who can't accrue money, your monthly average is amount you had + deposits - expenses, so it stays at whatever surplus you had at the beginning). July. Need $900. Well, I have only $300 in my bank account, so I have to take the additional $600 from my credit card, leaving me with just $100 credit balance. Now, I can't buy the things I normally did with my credit card, because realistically $100 is enough for maybe 2 1/2 weeks of normal expenses (assuming $40/week for groceries/eating out/etc). So, I end up having to spend the money in my bank account instead. Only, I don't have that much, because now I owe the credit card company $600, and that's a lot of money to pay back. So, I am stuck in a cycle of not having enough credit or cash, and need to start seriously thinking of getting another credit card and going further into debt.
In my opinion, the only reason you should get a secured credit card is if you have absolutely no way to get credit otherwise. And the truth is, there is always some way to get credit, such as getting a store card, getting the nice 10% off for first purchase and then pay the card off right away, cut it into pieces, and wait.
It's possible I don't understand the way secured credit cards work. If this is the case, please dress me down as you will.
posted by Deathalicious at 12:33 AM on March 17, 2008
If you're interested in anecdotal evidence, I didn't even get into any kind of debt until I was *out* of college and had a job. In college your expenses are actually very low; they start piling up when you have things like an apartment, bills, clothes you have to buy for work, etc. I'm not proud of the debt I racked up (I still do it from time to time when I travel but pay it off in around 4-5 months using nice large monthly payments) but it is interesting to note that I wasn't in debt in college.
Also, again with the secured cards: my understanding is that to get a credit card with, say, a $500 line of credit, you basically have to give the credit card company $500 to hold. Then, when you buy things with the credit card, you still have to pay it back with your own cash, and the $500 stays in whatever the account is called.
Now, let's say I get a student card, with a nice $700 limit. I put zero dollars into a secured account. I pay it off every month, and I have around $1000 in my bank account any given month. In July, disaster strikes. I need $900. I take it out of my bank account, no big deal, I take a little while longer paying that month's credit card bill (i.e. I pay half of the balance rather than all of it), resulting in perhaps $5-8 interest charged. Now, let's say I got a $700 secured credit card. I now have $300 on average each month in the bank (because for people with small incomes who can't accrue money, your monthly average is amount you had + deposits - expenses, so it stays at whatever surplus you had at the beginning). July. Need $900. Well, I have only $300 in my bank account, so I have to take the additional $600 from my credit card, leaving me with just $100 credit balance. Now, I can't buy the things I normally did with my credit card, because realistically $100 is enough for maybe 2 1/2 weeks of normal expenses (assuming $40/week for groceries/eating out/etc). So, I end up having to spend the money in my bank account instead. Only, I don't have that much, because now I owe the credit card company $600, and that's a lot of money to pay back. So, I am stuck in a cycle of not having enough credit or cash, and need to start seriously thinking of getting another credit card and going further into debt.
In my opinion, the only reason you should get a secured credit card is if you have absolutely no way to get credit otherwise. And the truth is, there is always some way to get credit, such as getting a store card, getting the nice 10% off for first purchase and then pay the card off right away, cut it into pieces, and wait.
It's possible I don't understand the way secured credit cards work. If this is the case, please dress me down as you will.
posted by Deathalicious at 12:33 AM on March 17, 2008
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To avoid being turned down (since you have no job and no non-student loans credit history), you may want to talk to your financial institution about a secured credit card. In other words, you agree to keep, say, $500 in the account so that you can have a $400 limit. If you do this, see if you can have the money held in a high-interest bearing account, not your chequing account.
If you get a card, make occasional small purchases and pay it in full. Later, ask for the card to no longer be secured. Then ask for the limit to be raised. And so on.
posted by acoutu at 9:39 PM on March 14, 2008