You’re turning 18. Surely you’re feeling all of the pressure of “adulting” and it can be intimidating. For years now you’ve been told to save and prepare for the future. Well… the future is here. That happened fast, didn’t it?
Getting a credit card can be a great first step in establishing credit history as a teenager. It is important to consider many things before applying for a credit card, to make sure it is good credit that you are building. Starting off on the right foot is essential. You should get a credit card at 18, as long as you are financially able to support it.
Analyze Your Financial Situation
There is no perfect age to get your first credit card, as long as you are at least 18 to qualify for one. So is getting a credit card right at 18 jumping the gun? You need take a look at your individual situation to find this answer. What is your financial situation like? You need to be sure you can successfully make your credit card payments every time. Looking at the following three things can help you create a budget plan and familiarize yourself with your own financial standing.
Do You Know Your Income?
You probably know what you make per hour. But do you know what you make per month or year? What about after taxes are taken out? Your credit card will have a monthly due date, so you should at least calculate how much you make per month after taxes. This is called your monthly net income.
What Are Your Expenses?
Next you’ll need to analyze your expenses. These should be regular, recurring payments such as a car payment, cell phone bill, or account subscription. You may even be able to make some of these payments using your credit card, assisting in credit building.
Learn How to Control Spending Habits
Falling into bad spending habits is easy to do. Getting the latest games, a new phone, and going out to eat can easily leave you with no money between each paycheck. Take a look at your current spending to judge how it can be improved. Credit can be ruined much easier than built, and repairing bad credit can be very challenging. Don’t be afraid to ask for help if you need it.
Building Credit Before You Need to Use It
At 18, you have the advantage of time. You likely will not be financing a home or an expensive new car for at least a few years, and you can definitely use that to your benefit. Not only will you have more opportunities to build your credit through on time payments, but how long you’ve had those credit accounts will also help. Age of credit makes up 15% of your score according to the FICO scoring model. Lenders typically like to see that you’ve been able to maintain good credit and keep up with your payments over at least a few years. If you start at 18, you’ll be better off by your early 20s. So when it comes time to buy your first home or finance your first car, you can meet the credit requirements to do so.
How to Use Your Credit Card Wisely
There is no one smartest way to use a credit card, as long as you make sure you don’t miss any payments or buy things you can’t afford to pay back. Here’s a few pointers that Teen Finance Tips can provide to help you figure out what’s comfortable to you.
First you’ll need to decide what type of card you want. Having little or no credit history, what is the best credit card for an 18 year old? Do you want a retail store-specific card that you can only use at once place? Or a credit card through your bank or credit union that can be used anywhere? Both of course have pros and cons, but as long as you can be disciplined and keep your spending under control, you should have no worries either way. Just keep in mind that getting a credit card at your favorite stores can easily lead to buying things that you don’t truly need.
If you’re concerned about spending over your limit, you could also consider applying for a secured credit card. This is a credit card to which you make cash deposits, that are used as collateral and becomes your credit limit. This is similar to a debit card in the sense that you only have what you have contributed in cash deposits, but will help you establish credit whereas a debit card connected to a checking account will not.
Start Small. It’s very easy to fall into bad spending habits when you have the available credit. This isn’t “fake money”, you’ll have to pay off every cent, plus any interest. Try to start with a lower credit limit, under $1000 and only make small transactions. You could consider limiting your credit card use to gas only. That will ensure that you aren’t buying things that are unnecessary, and will more likely keep the spending comfortable to pay back the full amount.
When you pay back your credit card balance in full, you can avoid excess interest charges. Make sure you understand how your credit card works. You should know the due date, interest rate, and any potential fees or rewards you could incur by using it. Some credit cards have interest rates upwards of 20% and you could be paying more on interest fees than what you actually used the card to buy if you get too behind. One helpful method is to make a payment every pay period from your job. Many jobs pay every two weeks, resulting in two (sometimes three) payments within a calendar month. If you’re able to pay in full every two weeks, you’ll never have to be concerned with missing a payment. Automatic reminders and forcing yourself into a routine can be helpful here as well.
Research Credit Cards Before Applying
Don’t let the excitement of getting a credit card, building credit, and preparing your future self cause you to rush into anything. As we said before, having a credit card can cause more harm than good if used improperly. You’ll need to take some time and research what different credit cards have to offer. Compare bank vs. credit union or store cards, interest rates, rewards programs that would benefit you, and reflect on your spending. Also be on the lookout for any special deals such as student credit cards with rewards programs geared towards active students. Put yourself ahead of your peers and begin with credit-healthy habits.