"Grown-up" Decisions about Credit. Eww...

[Krade]

So after GenCon is over (t-minus 2 weeks and counting:smallbiggrin:), I decided that I should get a credit card and buy a computer with it and nothing else until the computer is payed off.

There are a couple reasons for this: One, At the age of 22, I feel I have gone far too long having exactly no credit. I won't bother going into the details of exactly how I have managed to do this without living with parents for the past 2 years, it would take far too long. The other reason is that I need a new computer and this way allows me to get one now instead of having to save up for it (which would likely take a few months).

I guess the main thing I should figure out is exactly what kind of card I should get. Should I get a Best Buy (or similar store) card? Should I go through my bank? Should I consider other possibilities? Too many questions, and the one person I know that I could ask would use the opportunity to give me a lecture that I can't have heard before:smallsigh: on the responsibilities of owning a credit card. I would like to avoid this if at all possible.

[EleventhHour]

Bank. Get one, never use it (Or use it sparingly, and since it's with your bank, you can pay it at the same place as you withdraw. Added benefit of setting up automatic payments from the bank to the bank is possible, according to a flyer I recieved the other day.) Credit piles up, you use your normal debt card, and you'll be able to take that giant loan for a house or boat in 3 - 5 years.

Just my opinion, there's probably more or better ones out there. :smallsmile:

[Syka]

I have one with my bank. It's got a 300$ credit limit and I only use it sparingly and ALWAYS pay it off at the end of the month- in the 4 years I've had it, I have never carried a balance.

I don't know about stores, but I know when I first applied for the Discover Student Card I was denied because of "Lack of credit history". I lol'ed hard at that because I was getting it in the first place to build credit and THEY had been sending me stuff about it. But, like major cards, I have a feeling store cards probably want you to have some credit under your belt. Bank cards are a lot easier to get.

That said, you also might not get the credit line you need for a new computer. When I got my bank credit card, I had to be started at 300. I don't know how long that lasts, though, since I've never needed to increase it.

[Douglas]

Go through your bank. If you want to ever get a large loan to, say, buy a house without having the entire purchase price on hand, you need to establish a credit history, and I'm pretty sure store cards won't do that. Student loans will help with that if you have any, but having a general credit card account is better. You don't have to pile up huge bills on it, just having it and paying reliably is enough.

I use my credit card as a convenience card, not really for borrowing, just using it to buy gasoline, pay for restaurants when I decide not to cook for myself, and pay some monthly bills, and I have it automatically pay the full statement balance from my checking account every month. I've had it for a few years, only once letting a high balance stay from month to month, and I have a very high credit rating as a result; high enough that I can get the best terms banks will offer on a loan for the home I'm starting to look for so I can stop renting.

[Player_Zero]

Crazy people and your credit cards. Pay in cash and hide it all in a shoebox buried under your floorboards.

[Mr. Mud]

Crazy people and your credit cards. Pay in cash and hide it all in a shoebox buried under your floorboards.

Cash is king, especially with this stock market....

I mean seriously, the {{SCRUBBED}} :smallwink:.

[Cristo Meyers]

Mind an annual/monthly fees the card might have. There are still a few that will charge a fee just for letting you have the card. Interest rates shouldn't be a problem as long as you don't hold a balance on the card.

On that: don't hold a balance on the card if at all possible. The credit card company will hate you, but your credit score will thank you.

[Thes Hunter]

The best thing for your credit score is to regularly charge 10% of your available balance and pay it off immediately.


However, this is not what Krade wants to do. It's not a bad thing though to get one card and pay it off.

Krade, I think you should go ahead with your plan, because you seem very aware of your finances, and are a very disciplined young man. After you pay off the computer (which will be very good for you in establishing a credit history), then go on to making small charges while paying them off every month.

[SDF]

I have a platinum card from Wells Fargo with a $2200 line of credit. I got it for overdraft for my debit card. I overdraft occasionally and its been really good for my credit, because they keep upgrading me and raising my limit. :smalleek: I haven't actually bought anything with it yet.

[Zherog]

Barring a crazy deal, you almost certainly want a bank card rather than a store card. The bank card will have a significantly lower interest rate. Even if the store offers "90 days same as cash" type deal, you need to read the fine print. Oftentimes, interest accrues on the balance (and in some cases even compounds; that is, the interest added to your balance today increases the balance and therefore increases the interest you're charged next month.)

My understanding of credit scores and stuff isn't perfect, but here's what I believe to be true for you, as a first time credit obtainer. I speak from the experience of somebody who was once in debt for over $20K with credit cards alone. I've been free and clear for a few years now (with only my mortgage and "regular" bills) and my credit score is still screwed hard.)

-- Do NOT pay off the balance in the first month. Once you've actually established your credit history, you absolutely want to do this. But right now, you're trying to prove to credit agencies that you can make payments. Borrowing $1000 and paying it off the first month, sadly, doesn't establish the history you'll need to get a good credit score.

-- Pay more than the minimum balance. In my opinion, you probably want to pay it off in three months if you can. That's enough time to establish a payment history while avoiding getting hammered by interest too badly.

-- Whatever you've been doing to pay for stuff up until this point, keep doing it! Once you have the credit card, the bank wants you to use it. They'll extend your credit limit. They'll offer you crazy deals of a super-low interest rate for purchases made in a certain month. Whatever. Ignore them. You don't want to carry ever carry a balance on your credit cards. Don't give them your hard-earned money.

-- After you've established your history by making a few payments, pay off the balance. After that, never keep a balance on your card if you can at all avoid it. And if it's an expensive enough emergency that requires you to use the card, and you can't pay it off in one month, pay it off as quickly as possible. Again, interest accrues and compounds, keeping you in debt. You don't want that, but the bank absolutely does.

-- Don't get sucked in to the allure of it and spend beyond your means. This is what killed me and my wife. We had two Visa cards, a Sears card, a JC Penney card, and a Boscov's card (local area department store). We ate out four nights a week, putting it on one of the Visas. We bought Christmas gifts on whatever card was most convenient. We bought clothes and shoes and such from the department stores on the cards, even when we had cash in our pockets. We bought every new D&D book on pre-order from Amazon, charging it to the Visa. In the end, we were considering bankruptcy as a serious option. Fortunately for us, we had built up a ton of equity in our house and we were able to arrange for refinancing. If not, we were preparing to talk to a bankruptcy lawyer.

Establishing your credit history now while you're young is a great idea. It'll really pay off down the road when you go to get a mortgage or whatever life dreams you have that need serious financing. Just be sure to use them sparingly.

[Kobold-Bard]

Reading this thread apparently I am well and truly screwed.

I went with my uni on a three week trip to Japan, which ate my untouched overdraft. The bank were not pleased with this (apparently zero deposits ever, then taking £1100 overdraft displeases them). But this was fine because I would get a student loan that covered it.

However in order to avoid a huge penalty (protip: always read the fine print, I thought it was always 0% interest.) I had to use the £500 credit card I'd forgotten I got with my student account. I then had that unpaid for 6 months until my Student Loan came in, which covered that, but I've been living deep in my overdraft ever since.

I've now had to use the card again because two of my housemates skipped out on nearly £500 worth of bills money, meaning I'm truly screwed until September again when I get my next student loan.

I'm never going to get a mortgage some day am I? :smallfrown:

[Telonius]

Reading this thread apparently I am well and truly screwed.

I went with my uni on a three week trip to Japan, which ate my untouched overdraft. The bank were not pleased with this (apparently zero deposits ever, then taking £1100 overdraft displeases them). But this was fine because I would get a student loan that covered it.

However in order to avoid a huge penalty (protip: always read the fine print, I thought it was always 0% interest.) I had to use the £500 credit card I'd forgotten I got with my student account. I then had that unpaid for 6 months until my Student Loan came in, which covered that, but I've been living deep in my overdraft ever since.

I've now had to use the card again because two of my housemates skipped out on nearly £500 worth of bills money, meaning I'm truly screwed until September again when I get my next student loan.

I'm never going to get a mortgage some day am I? :smallfrown:

Dunno what it's like in the UK, but in the US bad credit generally goes away after seven years.

[Bouregard]

Reading this thread apparently I am well and truly screwed.

I went with my uni on a three week trip to Japan, which ate my untouched overdraft. The bank were not pleased with this (apparently zero deposits ever, then taking £1100 overdraft displeases them). But this was fine because I would get a student loan that covered it.

However in order to avoid a huge penalty (protip: always read the fine print, I thought it was )% interest always.) I had to use the £500 credit card I'd forgotten I got with my student account. I then had that unpaid for 6 months until my Student Loan came in, which covered that, but I've been living deep in my overdraft ever since.

I've now had to use the card again because two of my housemates skipped out on nearly £500 worth of bills money, meaning I'm truly screwed until September again when I get my next student loan.

I'm never going to get a mortgage some day am I? :smallfrown:

I would just live a few years with a good credit history and everything will be allright, however make sure you learn something out of it. ALWAYS READ THE WHOLE CONTRACT IF ITS ABOUT MONEY if not read it anyway.

Some hints about money:

-multiple accounts. I use one for automatic payments, one for occasionally payments like food or new things. and a third one to have some backupmoney.

-keep a small amount of cash in your home as a sort of security. If your bank decides to freeze your account you won't have to sleep on the street. I always have 100€ as a security at home.

-Always ask your self: How do they get money out of this? THERE IS NOTHING FREE OR STRANGE CHEAP ON THIS WORLD trust me on that. You may miss some good deals with idiots but you will not loose money to scammers.

-Credit is something dangerous. the basic thing about credit is that you get something now and have to pay more in the next few days/weeks or years. Keep that in mind. If you don't need it now. Don't buy it now. You can always save money now and buy it if you have enough. Or buy something completly different later.

Always pay your bills as fast as possible. Trust me just do it.

Before you go to a bank or credit institut ask parents/family/friends or other people who can give you one without you paying interests...
nearly always you just need a small amount of money for a few days. There is no reason to ask a credit institute for it.

[Keld Denar]

I wouldn't get a department store credit card. Go through your bank (or Credit Union, they are often best, especially ones associated with colleges. I used to bank with Michigan State Federal Credit Union when I was in college at Michigan State.) Credit Unions, especially ones near universities, tend to be the ones most likely to approve the balance you need to do what you need. At your point, don't worry too much about the perks, as you probably won't be filtering enough money through your credit card to make much of it at this point.

Eventually, though, when you have a job with stable income, a credit card is awesome. I have a Visa Platinum card through Alaska Airlines. I fly on Alaska Airlines a LOT. Every time I buy something, I get 1 Frequent Flyer mile PER DOLLAR, and if I buy Alaska Airlines tix with my card I get 3 FF miles per dollar. That adds up to a free ticket every 3 months or so. My case is kinda funny cause I fly a lot for work, but you can get all kinds of stuff from cash back to plane tickets to nights in a hotel and a host of other stuff. I don't hold a balance on my credit card though. I always pay off the full amount every month, and sometimes mid-month when I get too close to my limit. I filter all of my normal expenses (rent, gas, food, plane tix) through my credit card and reap the miles. When you have a stable income, I'd highly encourage you to do this as well.

In reality though, you don't NEED a credit card to establish credit history. Things like paying your utilities on time, paying student loans, and having a cell phone with a contract and monthly bill all help establish credit score. Also, for any parents out there, add your kids to your credit card account EARLY if you use it responsibly. As you make credit card payments, their credit score is affected even if they aren't using their issued card. My parents did this for me so I would have emergency access to funds (non-emergency spending was VERBOTEN) and so that I would have some established credit. I was able to obtain my own credit union issued card with a $2500 limit as a sophomore in college because of that.

Krade, with that said, my advice to you would be to not carry a balance on a credit card to buy a computer. If you can afford it cash right now, I'd recommend buying it and paying it off immediately or near immediately as to forfeit as little money as possible to intrest. From then on, use the card only for small things, or on things you'd otherwise pay cash on.

Also, don't cancel the card if you don't think you aren't gonna be using it. Canceling a credit card lowers your credit score. If you need, upgrade your card to a higher balance, and if you go through a bank, you can often adjust your perks and balance and whatnot. Don't cancel a card unless you absolutely need to, and try not to have more than 1 open at once. With electronic bill payment, you can pay off your balance mid pay cycle if you need the extra balance to make a big payment (like rent or something).

Last piece of advice, especially if you plan on carrying any balance for any length of time is NEVER EVER EVAR!!!!!!!!!!! miss a payment. Most cards have a clause in them where, if you miss a monthly payment, the interest rates go from 6% or whatever to like, 30-40%, and they don't go back down without more fight than its worth.

[Trog]

I've never had a credit card that I have actually used. Thus, I owe nothing. I may have fewer things than others my age but I am quite okay with that. I think having less stuff and no debt beats having all kinds of things and a huge debt. I don't mind having to save for the things I want and to go without if I do not have the cash. I think the only reason I would get one is to cover some emergency if I had no other way to immediately pay for it (and by emergency I mean like if my place burned down and I had to buy all new possessions, clothes, etc.).

But taking on a debt that you know fits into your income level and scheduling your regular payments is frequently the only way to get the larger purchases in life (house, new car, etc.) so I don't mind those sorts of debts when necessary. But those don't really have much to do with having a credit card I guess. Though they can act as a lender in the same way for smaller purchases.

If you only intend to use the card for a single purchase you're probably best off comparing interest rates for a credit card versus paying it off through a store card or the like. Whatever has the lowest interest rate.

I hope it goes well for you Krade. Yay for new computers! :smallsmile:

[Kcalehc]

However in order to avoid a huge penalty (protip: always read the fine print, I thought it was always 0% interest.) I had to use the £500 credit card I'd forgotten I got with my student account. I then had that unpaid for 6 months until my Student Loan came in, which covered that, but I've been living deep in my overdraft ever since.

Negotiate an overdraft first, the charges are much less if you tell the bank in advance that you might go over. Always pay the minimum balance on a credit card if at all possible. Live off pot-noodles and water in the cold and dark if you have to.


I've now had to use the card again because two of my housemates skipped out on nearly £500 worth of bills money, meaning I'm truly screwed until September again when I get my next student loan.

I'm never going to get a mortgage some day am I? :smallfrown:

If you have their details (name, address, etc...) take them to small claims court and get your money back.

[Keld Denar]

The only issues with what you are saying Trog, is that you need a credit history and a credit score in order to actually make those big purchases and not get gouged. If you want to buy your first home and take out a $100,000 30 year morgage (rather typical) and you have an established credit score and history, you can get a nice low interest rate like say....6%. If you don't have one, you'll probably get something more like 9-12% or even more. That kinda makes it necesary to "play the game". You don't have to have debt to have a credit score, but having a credit card DOES help. I had a friend in college who got a card, put about $1 in purchases on it per month, and then paid it off. This playing of the game incures no debt, and in the long run could save her thousands of dollars on her first house.

Like I said though, a credit card isn't the only way to establish credit history, but its often the easiest and fastest. Other ways include student loan and car payments, morgage payments, utility payments, and other stuff like having a cell phone. Do note that while utility and other misc payments only help your score a little if you keep up with them, they HURT your score a LOT by missing them.

[Erloas]

I agree with what some other people said, get one through your bank and use it and pay it off every month.

That won't help you get a computer any faster, but it will build your credit. I don't think getting a credit card just to buy a computer is a good move because you are planning on carrying a balance from the very first minute you get the card, which is not the direction you want to go.

I've been using a credit card for almost all my purchases for the last about 8 years. I've never carried a balance, I pay it off every month, or at least I have it set up so it pays itself off every month automatically from my other account so I don't have to do anything with it and I won't forget. Of course that only works because I never spend what I can't afford, but so long as you are used to working with cash that shouldn't be a problem.

It also makes it much easier to pay bills, its so nice to have them on autopay and not have to worry about sending them in on time or writing checks or getting stamps and such. Of course, once again, that only works as long as you have the money.

I started with a student credit card and it is now at about 20 times the limit it was when I started, and with no fees and I've never paid any interest. I've also got excellent credit because of it, which made it easy to buy a new car and a few years later buy a house as well.

[eidreff]

I have a credit card with an idiotic credit limit. I have in the past got in trouble not through overspend but unforseen things (like injury preventing work). I now only use my card if I can pay the balance off the same month. thus never incurring a charge for using my own money. The laptop that I am using now was purchased by transferring the money for it from my current account to the card, allowing it to clear and then purchasing the computer. I realise that this is backwards but it meant that the insurance cover which extends to credit card purchases (at least in the UK) applied to my laptop.

my tips are:
Avoid storecards. they have punitive levels of interest, and are very limited.
Make sure that you can handle the payments against any purchase that you do make (a no brainer there, but soooo many people fall into that trap)

[Trog]

The only issues with what you are saying Trog, is that you need a credit history and a credit score in order to actually make those big purchases and not get gouged. If you want to buy your first home and take out a $100,000 30 year morgage (rather typical) and you have an established credit score and history, you can get a nice low interest rate like say....6%. If you don't have one, you'll probably get something more like 9-12% or even more. That kinda makes it necesary to "play the game". You don't have to have debt to have a credit score, but having a credit card DOES help. I had a friend in college who got a card, put about $1 in purchases on it per month, and then paid it off. This playing of the game incures no debt, and in the long run could save her thousands of dollars on her first house.

Like I said though, a credit card isn't the only way to establish credit history, but its often the easiest and fastest. Other ways include student loan and car payments, morgage payments, utility payments, and other stuff like having a cell phone. Do note that while utility and other misc payments only help your score a little if you keep up with them, they HURT your score a LOT by missing them.
Not true. I have both purchased hmm... four cars (two of them new) without getting gouged in the least. And also a house that was financed at like 3.5% or so. :smallwink:

[Jimorian]

Another option for people starting out is a "secured" credit card. Do this through your normal bank, the cars that advertise this service are trying to take advantage of people with bad credit.

You deposit a set amount, and that's your credit limit. You get the convenience of a credit card for various purchases, you know you aren't actually in debt, and you build that credit/payment history.

Mine started at $600, they bumped it up as that account gained interest, and finally, they turned it into a regular credit card and released that account back to me to use as I wish. Because of my solid record on that card, it now has a $6000 limit. I only ever go over $1000 of that used if I take a trip somewhere, and still pay that off that month.

[bosssmiley]

Crazy people and your credit cards. Pay in cash and hide it all in a shoebox buried under your floorboards.

*checks crowbar, gloves and map*

Me? Nuthin'. :smalltongue:

On-topic:

(caveat: I'm UK, not sure how/if the US differs bewyond layman's knowledge)

Get a card from a reputable institution only. No 'presence free', 'remote service only' guff. Especially no store cards.

Ignore the continual extensions of your credit limit the card provider will offer. Stick religiously to your budgeted 'pay off full balance each month' plan, unless you need a bit of an outstanding balance to polish your credit score (counter-intuitive, I know. But some institutions like the idea of you as a revenue stream derived from charges). Be prepared to cut the card up at any time and revert to cash / current account banking.

Never forget: credit cards were invented for the provider's advantage, not yours. They place you under an obligation each and ever time they're used.

Why not buy the computer for cash? You can sometimes push for a better deal if the vendor actually sees hard money preparing to walk...

[Krade]

Holy poo that's a lot of advice! I wish I had time to read it all right now. I'll get around to it eventually and properly thank you all for the help!

[Death, your friend the Reaper]

Over in Aussie we have a thing called the Master Card Debit card. It's pretty swanky in the way I can shop online and use it where ever a credit card would normally have to be used, and yet it only takes money I own. (From my mattress, much more secure than the floorboards:smalltongue:)

It's sort of a hybrid, so not sure if it would suit your needs:smallwink:

[Keld Denar]

Sadly, most Debit Cards DON'T give perks like cash back or frequent flyer miles, and they DON'T establish a credit history. IF you can play the game, its much better to play it. If you can't, then best to stick with the Debit Mastercard.

[Rawhide]

Some people will try to tell you that credit cards are evil. They will tell you that you should never have or use one. They might boast about how they've never had one and never will or tell you a story about how they have cut theirs up due to problems with overspending and using too much credit.

I am very much not of this opinion, credit cards can be a very valuable tool if used correctly and responsibly. Never spend more on a credit card than you can afford to pay off and, if possible, never spend more on a credit card than you can afford to pay off in the very first payment.

I make all of my payments on my credit card (all payments that can be made on a credit card and doesn't have a ridiculous surcharge that is) and I have never once paid interest or an annual/monthly fee. In fact, I have actually made/saved money by using a credit card (keep reading if you want to know how).

Always check the interest rate of your credit card and compare them to other cards on the market. Look at all the fees and charges, look at the annual fee (and try to find one without an annual fee if possible). Be very careful of store cards, many of them have extremely high interest rates. As an example, at a time when mortgage (home loan) interest rates in Australia were around 7-8%, personal loans were around 9-10%, the cheapest credit cards were around 12-14%, almost all credit cards were around 16-17% and store cards (a form of credit card) were around 21-25%.

Credit cards can be used to spend more than you can afford right at that moment and then to pay it off over time. I however do not recommend this. Credit cards almost always have the highest interest rates of all the loan/credit methods provided by banks. There may be instances where if you look carefully and understand what you are doing very well, you can negate the higher interest rates with the lower fees (no establishment fee, etc.). You have to investigate this situation completely, fully and thoroughly. I can't stress this enough. You must really know and understand what you are doing when getting into any type of debt.

Always be careful to never spend beyond your means, never buy more than you can pay off. If you are not paying it off immediately, but over several months, do not pay only the minimum amount, pay it off as quickly as you can.

There are two main types of credit card. Those with an interest free period and those without. You may think that seems obvious, but the difference is usually in the interest rate. Those without an interest free period generally have a lower interest rate. If you are not going to pay your ballance off in full at the end of the month, then the interest free period credit cards may not be for you.

Now, I have a credit card, but I have never payed one cent for the privilege, not in fees, not in interest. In fact, I have already mentioned that I have actually made/saved money by using a credit card. Here's how.

If you have any sort of mortgage or loan that supports a 100% offset account (or if you have a free redraw facility), put all your money in that account. That will reduce the interest that you are paying on your loan (reductions in interest are tax free and save you more than you can earn from interest). If you don't have a loan yet, put it all into a high interest earning account, one that you can touch at any time without penalty (not something like a term deposit - term deposits can be good and you should look into those, but you have to keep some available for day to day use). This will at least earn you a little money from the cash you have laying around. Now in lies the trick.

Many credit cards come with an interest free period, usually 55 days. That's 55 days where the money you have spent is not costing you any interest and at the same time has not left your bank account. 55 days where it is not costing you anything and is in fact saving/earning you interest. You must never spend more than you have in the bank and always pay the balance out in full at the end of the period for this to work.

If you also get reward points on your card, then you can spend those for things like gift certificates or other free items. But I consider that a bonus and it doesn't facter into my finance calculations.

Credit limits have never been a problem for me. I never spend more than I have in the bank, more than I can pay off in full at the end of the interest free period. If they were to give me a one million dollar credit limit, I would not get myself into financial strife because of it.

---

So take a moment and think. Why do you want a credit card? Do you really want to get into that sort of debt to get a computer right now? Is there a better/cheaper way to get a loan?

My advice is that yes, you should investigate and get a credit card. But I would not recommend spending more on the card than you can afford to pay off, in full, at the end of the billing cycle. Nor would I recommend using it to buy something that you can't currently afford right now unless you absolutely need it now and you have fully investigated all of the costs and alternatives.