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Credit Card Advice

Discussion in 'Chit Chat' started by Jmiller85, Apr 7, 2017.

  1. Jmiller85

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    Im a current college student and have always had the luxury of paying cash for things. Well a buddy was telling me how it could be a good ideal to open a credit card or two and try to build some credit. I currently do not have a job other than being a work study at my college. Some I'm not even sure I could open one? Ideally it would be somewhere like Best Buy or Wal-mart since that is somewhere I frequently go. I would like to buy something small then turn around and pay it off before interest occurred. Would this help my credit score, or am I waisting my time and completely away from what I want to try and do. :slight_smile:
     
  2. kibou97

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    There are credit cards out there that are specifically designed to help young adults build credit so you could definitely get one, you just need to be really careful about which one you choose, the limit you have on the card, as well as the interest rate so as to not make you owe a ton of extra money to credit card companies. I would suggest to not get a credit card tied to any specific store, I'm not super familiar with the interest rates on ones from places like Best-Buy or Walmart but I have heard and seen a few cases where the interest rate is really big which can bite you big time.
     
    #2 kibou97, Apr 8, 2017
    Last edited: Apr 8, 2017
  3. Xochipilli

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    Credit cards are so useful! And you have the right idea about not carrying a balance. I don't think you would be wasting time with your approach. I'm not exactly sure how credit cards work, but timely payments definitely help. I think on time payments are a main factor in the overall calculation of your credit score.
    The easiest way to get your first credit card may be through the bank you have a checking account with (if applicable). That's how I started out when I had my first job (part time at coffee chain).
     
  4. AKTodd

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    Some basic credit card 'rules':

    a) Never pay for credit - if the card has an annual fee, you don't want to bother getting it.

    b) Avoid store cards unless there is a specific advantage to having one - for example, if you have a specific major purchase (like a TV) and you can get 0% interest by using or applying for the credit card, then OK. But otherwise it is very unlikely that you will ever buy enough from that store to justify it.

    c) If you are looking at a store card with a 0% interest deal, stop and check how long that introductory rate is for - confirm that you can pay it off entirely in that time. Most of those deals accumulate interest during the whole 0% time period (even though it doesn't show up on your card) and then hit you with all of it, even if you only have a little bit of the balance still on the card. You want to do everything possible to avoid that. Note also that if you miss a payment some cards will running these deals will immediately void the special and revert back to their full interest rate or even higher. Do not miss a payment.

    d) You should be looking at an interest rate no higher than 13%. Anything higher than that is probably not worth your time - and 25% plus rates are highway robbery - avoid them completely. The lower the interest rate, the better.

    e) Always look at the interest rate and whether or not there is an annual fee first when considering any credit card offer. Ignore all the other pops and whistles they may be sticking on and look at those first.

    f) If you only make the minimum payment you will take forever to pay off a card and spend a huge amount of money in interest over the years. If all you can afford is minimum payments, don't bother getting a card.

    g) Generally, you should aim to be able to pay off the balance on the card every month. If you can't, then plan to be able to make more than the minimum payment - say 2-3x more, at least.

    h) If considering a balance transfer offer, look at the interest rate, the fee for doing the balance transfer (usually 3% of whatever amount you are transferring - it will be applied to your card balance), and what happens at the end of the grace period. Again, try to pay it off entirely before the end of that grace period. The longer the grace period the better - 12 months is the minimum I will even consider and 18-36 months is better.

    i) Avoid cash advances like the plague - the interest on a cash advance is generally much much larger than the interest on regular purchases.

    j) If you don't know how credit cards work, either talk to someone who does or look for resources online. You might look for a credit counseling agency in your area and see if they provide free literature or classes or the like.

    k) Monitor your credit rating and credit report. The three big credit reporting agencies are required by law to provide you with a free copy of your report every year. Take advantage of it each year. Some banks will do something like online monitoring for free as well. Think long and hard before paying one of the online services that advertise on TV to monitor your credit. There are a number of free alternatives.

    l) Auto-pay is your friend - whether through the credit card company or your bank, you can usually set up automatic payments of some amount on the card every month. You need to sit down and figure what that amount should be (can you afford it, will it at least meet the minimum payment, etc.), but this can avoid missing payments if you have a tendency to forget things. Another option (if you aren't comfortable with the idea of money just being pulled from your account each month) in this area is paying online (why mess with paper?) and setting up automatic email or text message reminders to yourself to pop up some number of days before your due date. These can be lifesaver when life gets busy.

    Note that even with autopay, you can also go in online at any time and make additional payments. I try to keep my main credit card in a continual state of never having a payment due by paying extra each month so that if I ever miss a payment, it's no big deal

    Getting back to your specific situation - Credit card companies love to open high interest lines of credit with college students - because often mom and dad can be hit up for the money if the student can't pay. If you aren't working then think long and hard about getting a credit card and especially how much you can afford to charge each month. Once you figure that out, then do everything possible to only charge that much each month and pay it off each month.

    Speaking as someone who went from having crappy credit (was on a first name basis with several collections depts, had the same car repossessed twice) to having an excellent credit score (a bit over 800), I hope this helps,

    Todd
     
    #4 AKTodd, Apr 8, 2017
    Last edited: Apr 8, 2017
  5. RylanS

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    Do not use credit cards.
     
  6. Randy

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    I don't get why some people avoid credit cards like the plague. Yes, there are repercussions if you misuse them but with great (spending) power comes great responsibility.

    First and foremost: any card with an annual fee, avoid it (unless you can justify the annual fee through cash back or points or something. Store cards do suck at best and do often come with a high APR, avoid them if you can. Autopay is your friend to some extent. As a recent college graduate to a current college student, keep autopay off as there will be some months where you have to utilize the grace period to pay off your card. If you have a job and can keep up, turn it on by all means. If you keep autopay off, have your phone remind you to make payments. I recommend the Discover IT student version ( https://www.discover.com/credit-cards/student/it-card.html ) to start off building credit. Getting credit is sort of a catch-22. you have to have credit to get credit. If you just blindly apply for credit and get denied, that hurts your credit. Each time you apply for credit, your credit report gets dinged which hurts your score most for about 6 months.

    Some credit card forums that I know of are myfico.com and creditcardforum.com. You can use this tool to see which cards fit you best
     
  7. AlamoCity

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    I will add my 2 cents on some of these.

    Unfortunately, to buy on credit ( a car or home) you have to show that you are able to be responsible with credit. A catch-22 of sorts . So, while I agree paying with cash can be beneficial, I would recommend you get a credit card with a reputable bank and maybe only use it for a very specific use (let's say gas) that way you don't overspend your budgeted money and still show responsible use of credit.

    I would suggest a major credit card (like Visa or MasterCard) because if you open a store-specific account, you may not be able to use it elsewhere and will eventually need to open ANOTHER account (try renting a car with a debit card). Why have an unnecessary account. Though, for instance, sometimes stores like Walmart or Best Buy will have both a store card (that is a credit card that can ONLY be used at that store) and a credit card that is able to be processed through one of the credit card networks (e.g. Visa) and can be used at that store plus anywhere else Visa is accepted.

    h/t to Randy
     
    #7 AlamoCity, Apr 8, 2017
    Last edited: Apr 8, 2017
  8. OGS

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    Getting a card and using it responsibly will definitely help your credit score. People talk about your credit score like it's a measure of how responsible, or even moral, you are. It's not. It's a measure of your desirability as a borrowing client. Period.

    While never borrowing money for anything other than a house may be the most responsible course of action it is not what a desirable borrowing client does--and thus, unfortunately, if you take that route you may never get the chance to borrow money for a house. There simply is no substitute for revolving credit in your credit profile. I've actually had to tell people that their mortgage rate will be higher or they simply can't get a mortgage because they've never had a card in their own name.

    The good news is that credit card companies make a ton in merchant processing fees which means you can be a highly desirable borrowing client without actually paying them anything. All but the most rapacious card companies allow you to pay the balance in full each month and pay no interest. This is what you should do.

    For that reason I would argue that, when used properly, a card's interest rate is irrelevant. I actually have a card from back in the day that is still at 7.24%--by point of comparison the bank I work for won't issue a card under 13.49% currently. I use that card once a year to prevent closure. The card I use most often is at 15.24%--but I've never paid a dime in interest on it. Actually I haven't paid a dime in credit card interest in over twenty years despite the fact that I put just about everything on credit cards. I even missed a payment altogether by accident a few years back when my Mother died, I called and they reversed the interest.

    So if you aren't going to pick a card by interest rate--and I don't think you should--you're left with the benefits. Look for travel benefits and purchase protection benefits. If you travel internationally often you may want a card that doesn't charge foreign transaction fees. If you're loyal to a particular airline and fly at least once a year the savings on baggage fees may be enough to warrant an annual fee. If none of that floats your boat go for cash back. You should be able to get somewhere between 1.5 and 5 percent cash back.

    But all of this only applies if you pay the card in full each month. I'm not a fan of autopay--I spend too much time looking at people's bank accounts to be a fan of anything happening automatically in my bank account--but if that's the only way you can make sure your card is paid in full do it. Don't use cards to actually borrow money, even for a few months, it's a terribly inefficient means to do so. You're used to paying cash for things which means you're used to only buying things when you have the money to pay for them. Don't let a credit card change that in any way and it can be a great tool.
     
  9. Jmiller85

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    Thanks so much for the reply!
    Any cards in particular you would recommend?
     
  10. Assassin'sKat

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    Don't get a credit card until you have a job.

    I have a credit card and it's hard to pay off even though I do have a job.

    Credit cards can be dangerous. If you can't pay the bill, you will fuck up your credit score. Spend too much, you may end up in dept that lasts years.

    Don't get a credit card until you have a source of money. Once you have that, yes, you should look for a way to build credit.