Hi, I turn 18 in a couple days and i’m trying to do research on credit cards. This is all soooo confusing. My family isn’t very well off so i am trying extremely hard to not get into any financial troubles / excessive debt. I’m even opting for community college to avoid student loans. But the thing is, I don’t even want a credit card. why do i need a credit builder loan? Why do i need multiple accounts? Why does someone checking my score lessen it? Why can’t I be debtless? Why does changing my job or address lower my credit score!! This sounds like stockholm syndrome
Tbh a shiny amex that clacks sounds nice. Anyways
Someone please, help, explain this to my like i’m 5
Explain to me like I’m five
byu/Equivalent-Ear8218 inCreditCards
Posted by Equivalent-Ear8218
3 Comments
Good call on community college to at least take of your pre-requisite, wish more people took this route.
The point of having at least one credit card is for people to assess your ability to pay back “debt”, year after year. I quoted debt because a CC is the easiest and free route to do this.
For your first card, you can’t be picky as you don’t have any personal credit history. Priority is getting one from a non-predatory and reputable bank.
Check pre-approval from Discover, Capital One, or BofA (lookout for their student cards). If nothing, then grab something from your debit card/local credit union bank or the Chase Freedom Rise. If still not successful, then you have to go the secured route- put down whatever deposit you are comfortable with and that will be your credit limit.
Whichever one you end up with, form and establish following the golden rule of CC: always pay off your statement balance (monthly bill) in full before the due date each month.
Pay your CC 1x a month, in the form of that bill before the due date every month- nothing more, less. Toggle on autopay for statement balance, should you fail to manually pay (life happens).
Also ignore anyone or source that says to stay under a certain usage/utilization (i.e., 10/20/30%).
Take a deep breath, OP! Don’t stress too much. Check your libraries and Credit Unions in your city as they often have free classes about all types of credit topics. They’re free and no catch. There are website and apps that teach you about credit online – search for them online.
Some people love having accounts to get good payment history on their credit reports for reasons such as jobs checking your reports, applying to rent or buy a mortgage or putting cell phone or utility bills in your name.
You can be debt less and not have any credit. You may be required to provide a deposit for the above services.
I am not aware of job or address changes making your credit score decrease.
Sorry for the long post, but you asked a lot of questions so I’ll try to explain in as simple terms as I can!
* Why you need credit cards: You don’t, you can use debit cards if you want… BUT if you can use your credit cards responsibly, using credit cards lets you:
* keep money in a savings account for an extra month earning interest (instead of leaving your checking account immediately)
* protect yourself from fraud (if your number gets stolen or merchants are shady, you can file chargebacks and get your money back)
* earn rewards (in the form of 2-6% cashback, or points that are transferrable for free flights and hotels)
* How to use your card responsibly:
* Never spend more than you have in your bank account / could afford to pay back immediately (treat it like a debit card except you get to hold onto your money for a bit)
* Pay your statement balance in full before the payment due date (once a month, and you can set up Autopay to do this automatically)
* Another benefit of getting a credit card is to show lenders that you can pay your bills on time. In the long run, this can increase your score so you get better rates on mortgages, auto loans, etc.
* Why you need multiple accounts: You don’t, but more cards lets you:
* earn different rewards (some cards are 4% travel, some cards are 6% groceries, etc.)
* increase the total credit limit available to you, which improves your score even if you’re not using it
* protect yourself from various situations like one card getting locked/stolen, a payment processor outage, one bank closing your card for some reason, etc.
* Someone checking your score: This temporarily impacts your score because while opening 1-2 accounts is fine, opening many accounts within a short timeframe is potentially a symptom of someone seeking lots of credit that they might not be able to pay back. This is a small factor though – mostly just a warning signal to banks.
* Debt: As long as you use your card responsibly (bullet 2) you aren’t in debt. Interest never gets charged if you pay your statement balance on time, and “carrying a balance” / “being in debt” only applies if you’re *not* paying your statement balance on time.
* Changing job/address: These don’t impact your score. A change in salary could potentially change the total amount of credit limit a bank offers you, which *could* affect your score, but not by much, and you can easily offset that by getting more cards or using less of your total credit limit.