Credit cards are magic. Just a little piece of plastic that you hand over at the store, they swipe it, put your items in a bag, you sign a receipt and walk away. Those things are free, right? Right?!
Okay, it turns out credit cards aren’t magical at all. It’s not free. It’s debt. It’s an IOU with contingencies. There aren’t any real stores where you get something for nothing. Even Harry Potter had a bank account.
But credit cards aren’t the Dark Lord, either. They are more like Hagrid’s pet spider—a beast that can be your friend, but must be kept subdued or you’ll be in trouble.
All right. Enough with the wizard world. Here in the real world, credit cards can be a great way to establish yourself with credit, but you’ve got to be smart about them.
‘Arry Yer A Credit Wizard
It may not sound fair, but credit checks happen for a lot of reasons. That’s why it’s important to have good credit. Yes, credit reports are pulled if you are applying for a loan, such as a mortgage or a car loan, but they also get pulled if you are trying to rent an apartment or get insurance coverage.(1) Landlords and insurers, for example, see your credit score as a way to judge whether or not you are responsible. A potential employer may also look at your credit. (1)
Good credit is important, but what if you don’t have any credit? Teenagers and college students may not need to have credit while they are studying, but it’s actually easier to establish your credit before you head out into the adult world.(2) If you skip through these years without establishing a credit history, lenders will be hesitant to qualify you for loans, including credit cards!
Get in the Game Early
How can you start creating a history of good credit now? You can work with your parents to set up a joint credit card that lists you as an authorized user. Or you can talk to your bank or credit union about your options. They will usually offer credit cards to college students, even if they don’t have a credit history yet.
Be Smarter Than Your Credit Card
Having a credit card in your pocket doesn’t give you good credit. Know the beast! Look at its beastly tiny print.
To get started, hunt out these answers:
· What is the credit limit? You don’t want the embarrassment of your card being rejected. Plus, if you actually hit your limit, you might be overspending.
· What is the annual percentage rate (APR)? This is the extra amount you pay if you don’t meet the agreements in your contract. Usually it’s charged when you don’t pay on time or go over your limit.
· What fees does it have? A credit card can come with a variety of fees. Know what triggers a fee and make sure you aren’t accidentally letting those little guys add up!
Want to be on the safe side? Keep track of what you’re charging and decide up front what you can actually afford to charge—don’t let the credit limit be your budget. And always pay on time and in full.