In the United States, credit cards could be as American as apple pie.
According to Shift Process, Americans had 1.89 billion credit cards in the United States in 2019 — more than half of the 2.8 billion cards in circulation. Meanwhile, 2020 statistics from Forbes show that 79% of Americans owned at least one credit card, making those without one a considerable minority.
None of this is to say that you need a credit card to be an active member of American society. After all, credit is easily the backbone of US debt, which, according to The Balance, has reached $1 trillion in 2019. In Virginia alone, the average debt is $5,992.
Still, there are some things that might prompt you to get a credit card. Establishing a good credit rating early will signal to banks that they can be relied on for loans – something handy for to rent a house or buying a car, to name just a few examples. Developing this as a student means easier approval earlier in life.
According to Forbes, credit cards also have the added benefit of fraud protection, because it is easier for banks to stop a purchase that did not require the immediate transfer of real funds. They can also provide a consumer with emergency funds without cutting into their savings.
Credit cards can also outperform debit cards with their rewards programs, an advantage that seems to be the main cause of their popularity – according to Statistica, the majority of survey respondents as of 2019 i got a credit card due to reward earnings attached.
But how do you start your credit score journey? Here are a few things to know:
Some technical details
A consumer can be as young as 18 to get credit card approval, but would need a source of income — or a co-signer — if you’re under 21, according to WTOP News.
When applying, attention should be paid to the Annual Percentage Rates (ARPs), fees and policies attached to the card. ARP is best thought of as the interest a lender can charge on loans. The charges differ in that they are permanent, regardless of when the bill is paid. According to CNBC, these include annual and late fees.
Generally, the goal of any credit card holder is to improve their score for better loan limits in the future. In the United States, Fair Isaac Co. (FICO) scores are basically analogous to credit scores and are one of the most commonly used metrics.
According to Investopedia, FICO scores range from 300 to 850 and can be broken down into five main componentspayment history, amount owed, length of credit history, new credit and credit mix – or the degree of diversity in one’s credit type, ranging from car to loans to mortgage.
Building credit as a student
Many young consumers should expect rejection when applying for a typical credit card, though that’s not to say credit cards aren’t present on college campuses. In 2018, 57% of undergraduates had one, as WalletHub reports.
According to NerdWallet, students have the option of getting a “student” credit card or even a “secure” card, which requires a cash deposit as collateral in case the applicant cannot. repay their debt. Meanwhile, student cards come with less stringent scores or income requirements, but offer lower credit limits with few added benefits.
If a student is rejected, there are still other options. For example, young consumers can find a co-signer or become an “authorized user,” which is when the user’s credit card is linked to someone else’s credit.
Alternatively, one can use other services to record things like rent and utility payments instead of a credit score. Even student loans are a form of credit history and can be found at Credit.com annual report if necessary.
What to pay attention to
It should be understood that subscribing to a credit card also means subscribing to an additional responsibility. Failing to understand this can lead to a downgrading of the score and the potential for considerable indebtedness.
While cards usually come with a grace period, i.e. a period during which interest does not accrue on credit purchases, users should get into the habit of paying their monthly bills on time to limit the effect of any interest and accrue their Purpose.
Ignoring interest can get worse over time because it has the ability to accumulate. In addition to this, ARP can also develop if the user’s bill paying reputation is poor.
Meanwhile, as Credit Card Insider reports, things to avoid also include the maximum of a credit card and apply for new credit shortly after being approved. Not only does this look frowned upon by a bank, but it can rack up debt that is difficult to repay in the future. Instead, WTOP News recommends using less than 30% of your credit limit.
Most important, however, is consistency. Not only will years of good credit be remarkable for lenders, but they will also attract the attention of employers and tenants. Starting now can open the doors to a better future.
Contact Filip at [email protected] He specializes in media arts, design and international affairs.