Everyone Needs Help Getting Their First Credit Card
Keith Rucinski, Chapter 13 Trustee, Akron, OH
When you learn to swim, it is a process. There is an experienced swimmer to guide you. There are flotation devices to help you stay afloat until you can tread water on your own.
Learning to build credit is a similar process.
One of the best ways for building credit is to apply for a credit card. Credit card companies rely heavily on credit history in making the decision to extend credit, but new graduates do not have a credit history. Before graduating, most individuals have relied on family members to help financially, often called “the bank of mom and dad”.
However, no adult wants to keep asking their parents if they can make a purchase. It is time to establish your own credit by getting a credit card. Credit cards are a necessary tool in the modern world. You need a credit card to book flights, reserve a rental car, or to make a routine online purchase.
Banks have options for new graduates. Many of those options are not found online. You have to actually talk to someone at the bank (believe it or not, your phone is actually able to make calls).
One option is to have someone with established credit be a co-signer on the credit card with you. Just remember, the family member or friend who co-signs the card with you is also liable on the debt. Do not make them regret the trust they have placed in you by not paying the credit card bill each month.
Another option is to apply for a secured credit card. A secured credit card has a set limit, say for example, $300. You will need to deposit the $300 with the bank. It is ok to ask your parents to help you with the $300 (we have all been there). Each month you can charge up to $300. If you pay your bill in full each month, in about a year, the bank will refund the $300 to you and convert your secured credit card into a regular credit card. You have shown the bank you can manage credit. To make this work, you need to charge only what you can pay off at the end of the month, so just make necessary purchases for things like gasoline or groceries.
Learning to use a credit card wisely takes time. Like a beginning swimmer, you do not want to go the deep end of the pool too quickly. Interest on credit cards can accumulate quickly if you do not pay the bill in full each month. Do not count on just making minimum payments. Credit card statements are required to show you how long it will take to pay off the existing balance. Paying only the minimum balance even on a small balance, can take you years to pay off as the interest rate on credit cards can be over twenty percent.
Swimming requires practice. Learning to build credit also takes practice. By managing your credit card usage wisely, you will begin to build your credit history.