Our Thoughts

Credit Card Fears: Are They Warranted?

By: Onari Tariah

There is a negative stigma when it comes to owning a credit card with young adults. If you are over the age of 18, this article specifically pertains to you. Younger adults, specifically college students, have an irrational fear of credit cards. They might not know how they operate, maybe their parents had issues with credit card debt, or it could be a number of other reasons. “Why would I pay 20% interest when I can just use a debit card?” “It took my parents years to climb out of their credit card debt, why would I want to risk that?”  

The truth is, credit cards do not have to be scary. They can be a very simple tool that is extremely valuable for young adults, especially college students.  

What Are The Benefits of Owning a Credit Card?  

  • Buy now, pay later: This can be a dangerous mentality if you have a loose understanding of this concept. Do not let a credit card be a reason to buy something you cannot afford or do not need (this is how you run into trouble). I will explain more on this when I touch on the mentality of owning a credit card below. If used responsibly, a credit card is an opportunity to wait till the end of your billing date (a 30 day period), to pay off all of your expenses. This gives you flexibility in your budgeting, especially if you have a job that you receive monthly or biweekly paychecks.  
  • Cashback and a sign-up bonus: This is a simple benefit… most credit cards offer some sort of cashback and some even a bonus for signing up. Do some research on the best credit cards for college students if you are looking for your first one because there will be looser restrictions for approval. There are many credit cards that are specifically tailored just for college students.  Do not let the application process scare you away… it is a very easy and quick process. Why not earn at least an extra 1% cashback on all of your purchases?  
  • A lesson about responsibility: Managing a credit card is a great introduction to managing your future finances. It is an easy way to get exposed to some financial responsibility without getting thrown into the deep end of the pool right away. Before you know it, when you graduate college and are independent you will be managing all sorts of bills… so start building good habits now! 
  • Traveling: Are you considering studying abroad? Or traveling with the family internationally? There are some credit cards out there that offer zero foreign transaction fees as opposed to the standard 3% fee you would otherwise pay. Finding a credit card with no foreign transaction fees may save you money if you do decide to travel outside of the country. When searching for credit cards, look to see if they offer this benefit 

Why Is Building Credit Important When You Are Young? 

  • Housing: When you graduate college, you eventually will have to move out of your parent’s place when you land your first job. This may be immediate for some people while for others it may take some time before they move out. Either way, at some point when you make the move you will most likely need to find a place to rent. Whether you are going to live with friends, random roommates, or on your own; you will need to show you have a decent credit score. From my experience, most places want to see a credit score of at least 650. If you start building credit early on, this is very achievable!  
  • Car: This doesn’t apply to everyone, but some young adults will need to purchase a car after college. This is a big purchase and a really big commitment. Financing a car is not cheap and you can save yourself a lot of money by paying a lower interest rate. When the interest on a loan compounds on a monthly basis, it adds up. If you have a respectable credit score, you will be offered a better rate. Thus, owning a credit card can help save you money in the future… it is time if you are over the age of 18 to really consider building credit on your own. 
  • General: If you ever find yourself in a situation you need a loan for any reason, having a solid credit score will give you this option. You may never need to take out a loan but there is no reason you shouldn’t build a solid foundation of credit history to give yourself different options in the future. 

Enact a RESPONSIBLE mentality when owning a credit card! 

  • If used correctly, a credit card should cost you NOTHING… let me explain: You can find a great introductory credit card that has zero annual fees. If you pay off each statement balance in full you will also pay ZERO interest, ever, PERIOD. It is that simple… if you can use your credit card responsibly and afford to pay off its balance in full each month, you will build credit and earn cash back along the way for zero cost 
  • Mentality: The key to this is to use your credit card as if it were your debit card. Imagine your credit card is simply a medium between your checking account and the purchase you are making. You ONLY make a purchase if you can afford that purchase as if it was coming straight out of your checking account. Thus, it is no different than paying with your debit card, it is simply an extra step along the way so you can build credit and earn extra cash back at no additional cost to you.  
  • Execution: If you are worried about forgetting to make a payment, just simply set up automatic payments. It takes a few minutes to set this up and will automatically pay off your full statement balance each billing due date. Then you are all set! Just remind yourselfmentally use your credit card as if you were using a debit card… do not make purchases if you are unsure that you could afford them at the time. Be mindful of what your bank account looks like and do not increase spending because you have “credit”. It is simply a passageway from your purchase to your debit card/bank account.