Here goes – I’m 19, I’ve never had a credit card, and I need to get one for various reasons. I’m pretty cautious with money. I’m also clueless as to what kind of credit card I need, and what exactly APR and credit limits I should get. My aunt suggested a Visa Mastercard.
Suggestions? Anyone? Please?
Various reasons? You may not realize it now, but there is no good reason to have a credit card. You don’t need one to build credit history (and besides, you’re not planning on applying for a mortgage anytime soon anyway, are you?). You can use a Visa Debit card to buy things online, rent a hotel room, etc. And if you want “emergency funds”, why not just save a couple grand in the bank? It’s the exact same thing as having a $2000 line of credit, only without the interest, late fees, annual fees, telemarketing calls, or thirty-five pounds of junk mail a week. You want suggestions? Mine is “Don’t get one!”
It depends on how you are planning to use it. The best way is to never carry a balance, since credit card interest is a major rip off. The second thing is to have a card with no annual fee, unless you want a mileage card or something, which is probably not too useful for you.
The ones I use mostly have no annual fee and give money back. I use Discover, and an MBNA World Points Visa. (There are a few places, not many, which do not take Discover.) We’ve made money from credit cards - the companies must hate me. I don’t know what the APR is on these cards, since I never pay interest.
It is good to build up credit. If you ever really, really need extra money, you can get a loan cheaper than from a card if you have a good credit history. And a year before you need a mortgage is not the time to start. I’m not sure, but I get the impression you can get better interest rates with a good credit history.
I believe there are plenty of good reasons to have a credit card. I’ve got two and like Voyager, I have no idea what the interest rate is on them because I pay them off every month.
Try to get one with no annual fee. Be sure your card has a grace period. That means that no interest is charged until after you’ve had a chance to pay your monthly bill in full.
Don’t charge more in a month than you can pay off by the next month’s bill. If you need to make major purchases, go to a bank for your loan.
VISA or MasterCard will be universally accepted and they’re easy to get. Unless you’ll be financing international travel on your card, the limit shouldn’t matter. $500 to 1,000 should be plenty enough for a starving Americorps worker. 
So what is the best way for a 19 year old to build credit?
There are plenty of reasons to have a credit card cuauhtemoc.
The big one being related to the major difference between a debit card and a credit card, which makes the credit card infinitely better suited for things like shopping online comes in the form of what happens when you have a disputed charge. A big, unauthorized charge comes in on your credit card, you despute it when the bill comes, it gets taken care of. A big, unauthorized charge comes in on your debit card, your rent check bounces, and you have to have a really good bank to get them to give you your money back right away.
Secondly, have you ever tried renting a car with a debit card? Not an easy task.
Thirdly, there are credit cards that offer incentives that actually make them a smarter choice than a debit card. The Motley Fool is sponsering a mastercard that has no annual fee AND pays cash back on all purchases. You buy stuff with your debit card, you’re usually pulling money out of a non-interest paying account. You buy stuff with this credit card, you earn back a % on the purchase.
Other advice in this thread is good, don’t care much about the interest rate, as its really stupid to not pay it off each month. Keep track of what you spend on it, to make sure that you can pay it off each month. If the end of the month comes and you can’t pay it in full, take it out of your wallet until it’s paid off.
As for your credit limit, you don’t really have much say in that. You’ll apply for a card, and the company will assign a credit risk to you and put a limit on your card that’s appropriate to that risk level.
-lv
Credit for what? Credit is just the ability to go into debt. Debt is a bad habit our culture doesn’t recognize as a bad habit. And like all bad habits, the younger you are when you start, the harder it is to kick.
But yes, you do need a credit history for certain things. If I were 19, I’d build that credit history by paying my rent on time and keeping my checking account on the plus side. Am I in college? I’ll plan to not default on my student loans when I graduate. Oh, now I want a mortgage? Here’s an idea: I’ll put 25% down. I’ll use the money I didn’t have to spend on credit card payments for the last seven years.
Now it’s possible the OP is among the infinitesimal number of 19 year olds who never carries a balance on a credit card, but I don’t like those odds. I still think the most lucrative strategy is to forego the plastic, only buy things you can afford, and save for the rest.
Most of the time, timely rent payments and clean checking accounts aren’t going to come up on your credit report. Late rent payments (that lead to collections) and bad checking accounts, on the other hand will. And eventually, Nichol_storm is going to want to buy a house, or a car, and no credit can make things almost as difficult as bad credit.
I can understand the “Credit = Evil” school of thought - but a credit card is only as evil as you let it become. If you are looking to build a good credit history, then as has been said, paying your balance off every month is an excellent way to stay debt-free and build history. If you want credit to buy something you can’t yet afford then my advice is to think about it very, very carefully.
I’ve had serious (extraordinarily bad) credit. I finally got myself a Mastercard Debit Card to enable me to do things like buy my train ticket online. Working in NYC, surrounded by a zillion shops and temptations, I’ve found the best thing that works for me is to go shopping, without my card. If I find something I like, I’ll make note, and go back to my office. 99.9% of the time, I never go back to buy it - the actual act of shopping and finding something I like curbs the little craving, and the walk back to the office gives me a chance to mull over whether or not I really need to buy whatever it is. It’s saved me a lot of times. Just a thought.
My parting thought is… Bad credit will haunt you for a very, very long time. I’ve got a long way to go before I will ever be able to really mend my mistakes, but boy-howdy (yes, I just said boy-howdy) I have certainly learned from them.
Are you assuming that every item purchased on a credit card is frivolous? If not, how will a down payment for a house be saved by not using a credit card? Interest won’t be that much! If it’s paid off monthly, there will be no interest charges to be saved.
You think a young person just starting out will be able to save, say, $50,000 for a 25% down payment on a house in just a few years of not using a credit card? Many people entering the work force won’t even earn a total of $50,000 before they need a house. How are they supposed to save more than their total earnings? I can’t make your math work out.
Demon Credit is just like Demon Rum: What’s in the bottle isn’t inheritantly evil, it can be good or bad. It’s how you use it that matters.
Without a good credit history you cannot rent an apartment in many areas. You cannot hold certain jobs. You can not get a small buisiness loan when you want to become self-employed. Shall I go on?
Neither of which contribute to a good credit history. You can only get a “credit” history by borrowing money or opening credit lines. Granted, if you do get collections or NSFs, they can go against your credit reports, but nothing positive is added when you don’t have them.
And student loans won’t build your credit history until you start paying them off, either. I also find it amusing that you consider debt to be a bad habit, but are encouraging the use of student loans.
Now here you’re high. A 19 year old isn’t going to get a credit limit over $1000. Assuming that the kid maxes it out immediately, and then makes minimum payments for the next 4 years, he’s spent $4,000 on interest, tops (note, this doesn’t make this a wise choice, that $1000 worth of stuff he bought has now cost him $5000). Where the hell can you buy a house for $16,000?
Well, since a prime requisite of being a member of that infinitesimal number involves asking for (and getting) good credit card advice before even applying for the card, I’d say that the OP is off to the right start.
I do not advocate abstanence-only education on any topic, because the person ends up thinking that he’s educated when he really isn’t, then when they go ahead and do it anyway, they don’t have any idea what the consequences are.
And if you’re in college, it’s really, really hard to not have plastic. Hell, I remember getting one credit card simply because they called me at 9 am on a saturday and it seemed like the easiest way to get them off the phone at the time.
-lv
I will attempt to answer your question, especially since I agree with your goal of obtaining a credit card. Responsible credit is an excellent tool. In my experience the best credit card deals are usually offered through credit unions. Credit unions are more people oriented, rather than having businesses as their key customers. If you are a member, check their rates and fees (if any). Sit down with representative and explain your situation and goals. They should come up with a reasonable product for you.
These days it seems like the interest rate is coordinated with your credit worthiness and as a newbie you may be pegged to a higher rate at first. They may even start you off with a secured card, which means that you deposit say $1000 in an account and then can “borrow” on the card against that amount. As long as you make payments on time you will do fine. The secured account will eliminate after about a year and you will have a normal, unsecured credit card. No merchant can tell from the card that you have a secured account by the way.
Credit union membership is pretty loose these days so shop around. It used to be that you had to be part of a qualified “class” perhaps a neighborhood, or occupation to belong or a family member of an existing member. Those requirements are ending rather quickly.
The card should not carry any fee, unless you participate in a travel miles type of thing, and even then some cards still don’t cost you. The rates vary, starting at about 7% and scaling up to about 12%. In shopping around also investigate the grace period you have to pay off the monthly debt. A good card should offer 25 days. Also see if you have free online payments and transfers. Every month I simply do an online transfer from my checking account to my Visa. That saves you postage and extends the grace period a bit–as long as you remember to be responsible. In addition, some credit union Visas and Mastercards offer product purchase warranty extenders (up to a year additional) and free rental car insurance coverage for no extra charge. That stuff matters to me but not to everyone.
Also check out the products offered by your bank and other banks, the daily papers sometimes print out a weekly comparison in the business section.
I think you will do fine, just keep your head straight.
I’ll throw in my two cents worth:
I’m 21 and have a Visa card through my University credit union- got it about a year ago for my trip overseas. There’s no fee and, without any credit history, it’s about the best rate I could find (11%). I think I have a $500 limit but, to tell the truth, I haven’t even charged half of that. I mostly use it for online purchases. The credit union is small and easy to deal with, and I haven’t had any problems.
[ul][li]Get a card with no annual fee.[/li][li]Pay the balance off, in full, every month, with no exceptions[/li][li]You will get five to ten offers for new credit cards per week. Tear them up and throw them away.[/li][li]Pay the balance off, in full, every month, with no exceptions[/li][li]The holder of your card will mail you every other week with offers to sell you things. Tear them up and throw them away.[/li][li]Pay the balance off, in full, every month, with no exceptions[/li][li]Put all your everyday charges on the card - groceries and so forth[/li][li]Pay the balance off, in full, every month, with no exceptions[/ul][/li]The instant you use the card to buy something you cannot afford, and carry a balance, you are screwed. Badly. This is nearly always borrowing money to buy a depreciating asset, and it is nearly always a bad idea.
If you pay the balance off, in full, every month, with no exceptions, it is a short-term, interest-free loan. If you carry a balance, you are throwing 21% of your money into the street. The instant you make a late payment, the rate they charge you will increase enormously.
The credit company will make every effort to try to get you to carry a balance. All offers from them, with no exceptions, are attempts to get you to carry a balance so they can charge you. They will send you blank checks. Tear them up and throw them away. They will send you offers to sell you credit insurance. Tear them up and throw them away. They will offer to allow you to skip monthly payments. Do not skip any payments. Credit card companies try to turn people with good credit into people with bad credit. They also try to turn people with bad credit into people with worse credit.
It is possible to use credit responsibly. The credit card companies hate it when you use credit responsibly. If you are mature enough to handle it, it is a good thing. If you are not, you are screwed. Badly. Very, very badly.
FWIW. I would rather eat beans for a month, if that is what it takes, than carry a balance. Credit card companies hate me. Mortgage companies, on the other hand, like me. Trust me, it is better (and cheaper) to be liked by mortgage companies.
Regards,
Shodan
Like a card from best buy or Sears or Hechts. These have ueber high interest rates, but that is not important at the moment.
But some stuff on the account.
Pay it off like the other guy said.
You will recieve a tree in the mail for a long time.
Pick a fancy smchancy card that gives you something for using it.
Buy what you can afford.
Pay it off each month.
Dont do what I did. Every card I got in the mail I said “Yay”. I also used them to pay part of my college tuition.
My credit is 4 times my income, and I have seven cards.
Credit cards are like beer, they are only a problem if you abuse them.
So that’s where all the homeless people come from! It’s not mental illness or alcoholism after all, it’s lack of a credit history! Who knew? Seriously, if you’re saying it’s impossible to find a place to live without a credit history, you’ll have to prove that to me, because I don’t believe it.
This is probably true, but it’s not true for most jobs. And the OP didn’t specify which career field she’s planning to go into, so I see no reason to assume she’ll be unemployable unless she runs out and gets a credit card right now.
A. Again, did the OP express a desire to become self-employed? Ah-no.
2. With a little patience and discipline, you can save the startup costs for a small business without going into debt.
III. Credit history is a hell of a lot less important when you have some collateral. That means you can save up for that pizza oven, then use it as collateral for the small business loan that’ll launch your pizzeria into the stratosphere.
Whatever blows your dress up, Betsy.
The management firm that owns my apartment complex will take a piece of official letterhead and write me a nice letter to the effect that I pay my rent on time every month, if I ask them. Take that to a bank, it’s documentation of a current account.
Holy crap, you mean she’d have to wait until she graduated to build a credit history? She could be almost 24 years old by then! Oh well, at least she can enjoy her good credit in her golden years.
Well, that’s why I’m here, to amuse you. But I only mentioned the student loans because I knew if I didn’t, someone would say “If debt is so bad, then how come it helped me pay for my college edumacation? Answer me that, cowboy!” And it’s unfortunately true, it’s extremely difficult to pay for traditional higher education without some kind of loan. At least those programs are fixed-rate, subsidized, and deferrable, unlike the credit cards which happen to be the <ahem>… subject of this thread.
HAHAHAHAHA! HAHAHAHAHA!
Statistically, people spend more when they use plastic, so it’s not just the interest going out, is it? It’s all the money you spend that you wouldn’t have spent if you didn’t have the credit card. And like Shodan says, they’ll do anything to get you to spend that money you don’t have. I used to get “convenience checks” in the mail in envelopes that said “FREE MONEY INSIDE! GO TO BERMUDA TODAY, YOU CHEAP BASTARD!” Of course these were the ones that start at 5.99% and jump to 19.99% in six months.
And do you think maybe, just maybe, it might take someone a little longer than 4 years to save up a down payment for a house? No, of course not, we’re Americans! We don’t have to save for anything, we have credit! Well, $200 a month in a mutual fund bearing a 10% average annual rate of return for seven years will be worth $24,152 (or something like that, without figuring tax - financial experts may feel free to correct my math). Oh, but Nichol Storm will be 26 by then, so she may be too old and infirm to enjoy it. Give me a break.
And I’ll take this opportunity to ask John Carter of Mars what he thinks an early twenty-something needs with a $200,000 house? Maybe she just moved out of one - her parents’, which probably took them a good deal longer than 25 years to attain - but that doesn’t mean she’s entitled to one of her own now.
That’s fine. I just think it’s sad the way the myth is perpetuated that a credit card is something you have to have. I want the OP to know she has the option of going without plastic. Lots of people don’t know that, or don’t give it much thought. I’m just here to say “You don’t have to believe the hype.”
And if you don’t resent aggressive and predatory marketing tactics like this, I’ll resent them double for the both of us.
I thought I was debt averse! (I’ve never had a car loan) but I don’t think it is good to be debt-phobic. first of all, the OP said she(?) was good with money, so we can assume that she got the message about not carrying a balance.
Debt is bad for current accounts, stuff like entertainment, clothes, things you can do without. It can be good for capital items. Consider a house. First, if you wait to get a 25% down payment, you might wind up with less house for the same money because of rising prices. Second, say you have 25%. Given taxes, and today’s low interest rates, you might be able to invest the other 15% at a higher return than putting it into the house. If that is true, and I have some investments like that, you are losing money by putting more down.
Second, one of the big advantages of home ownership is leverage. If you can afford more house at 10% down, and prices go up, you’ll be getting the advatage of appreciation of that extra 15%. Assuming that one can handle the payments at 10% down, the payments stay constant, and become a smaller percentage of your income due to inflation and natural salary increases.
The same is true, in a sense for starting a business. In many, market windows are important. Waiting a few years until you save enough might cause you to miss the window entirely.
Mismanaged debt is bad, but carefully managed debt can be advantageous.
I’m honestly not sure where you’re coming from here. Are you honestly proposing that landlords don’t run credit checks on their applicants? Or that a landlord would prefer a person with a good credit history rather than one with no credit history?
I’m sure that if you’re willing to live in a lesser apartment in a not as nice neighborhood, your “no credit history” will look better than the “poor credit history” of the other applicants and you can get an apartment to live in. But you’ve limited your ability to compete for the better apartment for no good reason.
But again, why limit yourself as to which jobs you can hold or whether or not you may want a small buisiness loan in the future when, if used responsibly, you can have ALL the opportunities at no cost to you?
And the bank will say “that’s nice, but what’s your credit score?” In case you’re really this uninformed, here is a link that explains what goes into your credit score. Note that when they say “account” they mean “credit account”. Rent is not a credit account. Your checking account is not a credit account. And they will only show up on your score if you treat them like a credit account (NSF, no pays). Note that one of the biggiest here is Length of credit history. That theoretical mortage you’re paying 25% down on will have a higher interest rate if you have a 0 year credit history than if you have a 7 year credit history, and you may very well be paying more in interest over the life of the loan than you would if you had simply managed a credit card well starting at age 19.
Again, it’s a length thing. If she wants to buy a house when she’s 28, it’s better to have a credit history going back 9 years than one going back 4.
I will. According to this calculator, which accounts for taxes and inflation, it’d be more like $10k. Meanwhile, I made $150k on my first house in two years by buying without a down payment in a hot housing market, which I couldn’t have done without a good credit score.
Who the heck said anything about “entitled”? What’s wrong with “wanted” and “can afford the payments for”?
You are correct in that you don’t “have to have” credit, but it can sure make your life easier if you do have it and you use it correctly.
-lv
Full disclosure: I have a credit history going back about nine years, and it’s very good, so I haven’t actually tried any of the things I talked about in my last post. So take my advice for what it’s worth.
However, I’m not borrowing any more money until it’s time to buy a house, and then only as little as possible. And I’m certainly not going to open any more credit card accounts. It’s kind of an activist stance, and I don’t expect everyone to understand or agree, but I’ve decided that’s the road I’m going to take.
Our culture is becoming more and more debt-tolerant all the time, to the point where debt is almost compulsory. Perhaps we’re following our government’s example? We want it all and we want it now, and we want it better than our parents and grandparents had it, even though they worked all their lives for it. And when we don’t have it, we’re sold and marketed to until we believe we deserve it (that’s what I meant about “entitlement”, LordVor), and that we’re worth less than those who do have it. And then, if we’re as suggestible as most members of the public are, we’ll do anything to get it.
And suppose you want to opt out of this system? It’s getting harder and harder, and we’re letting it happen. In a just world, when Mr. or Ms. “That’s nice, but what’s your credit score?” at the bank says you need TRW to know all your vital stats before they’ll do business with you, and the only way to achieve that is to enter a credit agreement on terms that are ridiculously unfavorable to you, you can say “Gee, then I guess you don’t get my business.” But as we’ve all noticed, there are fewer and fewer banks all the time. Ask anybody where they’ve banked in the last twenty years. Most of them will say “Well, I used to have my money in Bailey Bros. Building & Loan, until it got swallowed by Pennsylvania Finance and Savings, which was acquired by Antarctic National Bank, which was then taken over by United Solar System Galactic Universal…”
What’s going to happen when there are only four banks in charge of the entire money supply of the country? You’ll either become their bitch or go back to the barter system, that’s what! I’m being dramatic here, but you get the picture. We’re giving up some of our freedom by allowing this to continue, and I don’t like it. And what do you do when a company or companies do something you don’t like? You reduce your patronage of those companies, of course. So for my part, I’ve decided to stop borrowing money.
BTW LordVor, that’s a handy calculator. And congratulations on your nice high tax bracket! Do you think it’s just possible, though, that the OP may be in a lower one?
Are you kidding me? I have not been able to find an apartment for 3 years because of my credit. 99.9% of the landlords I’ve talked to - whether renting a bedroom or a house - check credit, and use the report.
Wait… You mean… Owning a house is something I have to be ENTITLED to? So there are some people out there who… for no good reason, aren’t entitled to a home that they own? If I work hard, earn good credit, and can afford it… There might be a reason why I shouldn’t be able to get a home?
wow. I am sincerely curious as to the “credit is evil” sentiment you’ve got going. As someone who has bad credit and understands how evil credit ABUSE can be, I don’t understand.
cuauhtemoc , most everything you said in your last post made a good deal of sense. (As for the tax bracket, I just used the default on the calculator). I just wanted to get the point across that willfully avoiding the whole system can end up costing you in the long run, as well.
Full disclosure? I’ve got about 12 years in my credit history, the first 2 good, the next 5 bad. Then I, ahem, managed to jump up a few tax brackets and finally started earning more than I spent and worked hard on repairing my credit. I was without a credit card for about 2 years (wasn’t about to pay a deposit to get one), then worked my way back with a high annual fee until finally I’m back in the land of good credit.
I believe that banks are evil, credit card companies especially so. But rather than avoid them, I understand their evil ways and now avoid the traps that they put in my way. For regular banking, i closed my BofA account years ago and went to a credit union, which goes out of it’s way not to screw me (a much better alternative than the barter system).
I also don’t plan on getting into any more debt. The tax return this year is paying off the last car loan that I expect to every have. But I’ll keep my credit cards, and let them work for me (as 28 day interest-free loans that pay cash back). But I’m not going out of my way to pay off my house more quickly, I’m only paying 4% on that money, and I get 1/3rd of the interest back on my taxes. I can certainly do better than that in the market.
-lv