This is where you finally understand exactly what those catchy Credit Karma commercials are talking about
A lot, it turns out. I thought learning to drive a car was a big responsibility (it is btw) but to be a functioning adult requires a lot more than a drivers license. Of course, as a college freshmen I'm not expected to have it all figured out yet, but I've been thinking particularly about finance and adulthood as I thought about college so I decided to share my thoughts with you.
A few weeks ago I opened my very first bank account! It was a little celebration in the bank...I even put Aggi's face on my card! Then the woman that helped me open the account mentioned something about a credit card...I froze. Thankfully Dad spoke up and assured her I wasn't even close to ready for a credit card.
Look at her cute little face!
Don't even think about a credit card until at least your junior year of college or you're working a steady job // There is no reason for a college student to have a credit card. Honestly none. As someone over the age of 18, I've already received a lot of offers from companies promising low fees and high lines of credit if I were to open a credit card with them. Don't fall for it! At this age we don't need a credit card and we also don't need to think about how to build our credit score. Just say no to credit cards.
Now to understand why credit cards can be so damaging, you have to understand the difference between a credit and debit card. A credit card is something a credit card company will give to you and extend you a line of credit with. For example if you get a credit card that has a $500 line of credit, you can purchase things up to $500 on that card. Then, you pay back the $500 to the bank that gave you the credit card, usually by the end of the month. You need to pay at least the minimum balance on your credit card every month in order to not affect your credit score. A debit card, or bank card, is a card that is attached to your bank account. However much money you have in your checking account is how much money you can spend on your debit card. There's no paying back anything at the end of the month because the purchase is made immediately out of your account! Your pay check and whatever income you have will be deposited into your checking account (unless you designate something different).
Set up a savings plan // Most banks offer this in a very simple way: every time you make a purchase or payment using your debit card, meaning money is taken out of your checking account for something, a fixed amount will be transferred into your savings account. For me personally, every time I make a purchase with my bank card, $1 dollar is taken out of my checking account and put in savings. It's a really simple way to increase the amount in your savings so if an emergency ever pops up and you need money, you have it!
Track your purchases // Let's say someone steals your wallet and starts using your bank card around town. Do you know which purchases are theirs and which are yours? You should! Without even looking at the statement breakdown of exactly what was purchased you should be able to look at the total amount in your account and know right away if it is right or wrong. Use an app, use a notebook, use a spreadsheet...use anything and record all of your purchases. Plug in the amount you start with, any deductions, any deposits, and don't forget to account for any money transferred into savings automatically! For me, I just have to remember to add one dollar to all of my deductions. Simple. Done and done. This also helps you avoid over-spending your money so you're not stuck in the Target line with a bunch of would-be purchases and a big Declined sign on the credit machine. Not fun.
Have a steady stream of income // Before you even think about getting a credit card, make sure you have a way to pay for it. If you're still getting a $20 allowance every week that's fine! We're not fully adults yet! Take all money offered from Mom and Dad and Grandma and Auntie Anne as long as you can! (my Mom is laughing reading this somewhere) Just don't get a credit card. Have a part time job for the summer until you go back to school? Don't get a credit card. Work full time at Rico's Pizza and take home a pay check every week and expect to work there for a while? Ding ding ding! You qualify.
What you see on the homepage of Credit Card Insider
Pick the right credit card for you // So you've decided to get a credit card. As long as used responsibly, credit cards can be very beneficial and some can afford you several perks. If this is your first credit card, I suggest finding a card that is specifically for students. They're made for people who don't have any credit score yet, usually have no annual fees, offer lower lines of credit (so less to potentially screw up), and come with the understanding that you're new at this so a few hiccups at the beginning are generally okay. Any time you get a credit card you need to decide which company and which card is perfect for you. Don't listen to the commercials--do some actual research! Some cards offer airline miles, some have a points system, some do cash back--pick the one that is best for you. Credit Card Insider makes it incredibly easy to find the perfect card for you. They recommend the three best cards they can find based on all sorts of criteria: if you're looking for a student, business, travel, reward, or prepaid credit card, your current credit score, and even the company you want to do business with. Check them out here.
Understand how to reasonably build your credit score // Alright so you finally have your first credit card. How do you not screw it up? First of all don't buy those ultra-adorable pair of shoes you saw online--or that years supply of hot chocolate. Those are purchases I would label "debit". Pay for them right now, and don't worry about finding the money for them at the end of the month. The safest way to build your credit score when you first open a credit card is to only use the credit card to purchase small things you know you can pay back at the end of the month. Need a pack of gum? Credit card! Want a slurpee? Credit card! That $300 rare collectable action figure? Debit card!!!
Every single adult in my life has stressed to me over the past six months how important it is to not give into the credit card flyers that promise trips to Bermuda* if you only open an account because it can do so much damage to the credit score that I will need one day to rent an apartment, buy a car, buy a house...things like that. Don't screw up your credit now, take it from all the adults in my life.
(*Bermuda, Kansas and only after you earn 20,000 points)
Thanks to Credit Card Insider for inspiring this post.
What are your thoughts on credit cards? Have one and want to share your thoughts? Let's chat below!