The Financial Student

Before concerned parents and people whose lives were “destroyed” by credit cards start freaking out, realize that I’m simply advocating that an 18 year old open up ONE credit card, not eight. Also, only people with an income should be opening one.

Why Open an Account?

Having a credit card is beneficial for a variety of reasons. Here are a few:

• You begin building a credit history (something that banks use to decide whether or not to give you a loan)
• They’re convenient; just sign and go.
• Allows you to easy monitor what you spend money on; remembering where you spent cash can be difficult.
• Safe. Card stolen? Call up the bank and tell them. Charges will be reversed.
• Rewards and cash back. (Only applies if you pay off the balance in full every month.)

Why Kind of Card Should I Get?

There are hundreds, if not thousands, of different cards available. 18 year olds should probably stick to a student card or store card, for now.

I’d recommend just getting a simple, no frills student Visa or MasterCard that you can use almost anywhere. Opening up a store credit card (a card that can only be used at a certain store, like a Macy’s or Kohl’s card) can also be a good way to enter the world of credit, but they aren’t super flexible.

A better idea might be to open up a “branded” card. This is a card that’s offered by a certain company as their own card, but it still displays the Visa or Mastercard logo and can be used anywhere those cards are accepted. Gas stations often have these types. For example, I currently have a Mastercard that’s branded by SpeedWay (I’m an authorized user on my dad’s account) that I use to purchase gasoline, but I could also use it somewhere else in an emergency.

These types of credit cards are a good way for young adults to build credit because you can ease into using them. Just charge your gasoline to the card and pay the bill off as soon as possible. You’ll build credit, but won’t pay any interest and you’ll get comfortable paying the bill.

You want the following in any card you open:

• No annual fee.
• Widely accepted. American Express and Discover aren’t quite there yet.
• Cash back, if possible. (Note: DO NOT BUY STUFF TO JUST GET POINTS! Cash back is for things you were going to purchase anyway, even if you didn’t have the card.)

What if I Notice Myself “Shopping Until I Drop?”

STOP USING THE CARD. IMMEDIATELY.

If you’ve rung up a bill that you can’t pay in full within the current billing cycle, cut up the card or literally freeze it by putting it in a zip-loc bag filled with water.

To prevent this from happening in the first place, you might want to let your parents or someone else you trust take a look at your bill. You might not have realized that you started buying iTunes songs like it was your job. A responsible third party will.

After you’ve have time to beat the shopping bug, carefully re-introduce credit into your life. Buy just one, small thing every month and pay the bill as soon as you get home. Self-control can be difficult to master, but it can be done.

Wrap Up

Credit cards can be dangerous, sure. Some people will abuse their lines of credit. But you don’t have to. I look at credit cards as a tool. Hammers can certainly hurt people, but they can also help craft a home. There are good and bad qualities in almost everything. But opening a credit card can be a great step into the adult world. You can become responsible with credit now, without learning the painful lessons of interest charges and late payment fees that so many others faced. You’re an adult. Be responsible.

If you’d like, you can jump forward to the next post in this series: Learning the Basics of Money Management or jump back to the previous post: Grow Up.