I spoke with Jillian Berman about getting her first credit card, and here’s the resulting Huffington Post article.
We talked about most importantly paying off your credit card each month, and if you’re not going to then rewards aren’t the first consideration, interest rates and fees are.
We also discussed credit card signup bonuses, which came up in the article in the form of not being afraid to apply for multiple cards, the additional salient point is that having more availability credit that you aren’t using is good for your score (shows how responsible you are with credit). If you spend $2000 in a month and have a $5000 limit (even if you pay off that $2000) you are using 40% of your available credit. If you spend that same amount and have $20,000 in available credit, you’re using only 10%.
I did like this rather vexing comment from Matt Towsend, senior manager of community affairs at Discover, on the need for better financial literacy education:
“Parents are more comfortable talking to their kids about sex, drugs and alcohol than they are talking about money,” he said.
Here’s my credit card strategy for 2012, and my analysis of the Chase Sapphire Preferred card as the king of credit cards, and finally a consolidated listing of my credit card advice.
Matt Towsend’s sounds like he’s on to something. Then again, how many companies do you know of that offer points or miles just for getting drunk or risking an STD infection? How many miles or points is a damaged liver or a DWI or an STD worth anyway? Can you churn your DWI’s and STD’s into multiple bonuses? Hmm. Maybe Matt’s not so right after all. Maybe blaming the parents for not fully understanding a system that is completely opaque to them isn’t the issue after all. Maybe the issue is lack of transparency by the credit bureaus and servicers?
The Obama administration made it harder for younger people to get credit cards. This is good thing so that credit card companies can’t fleece the younger generation into debt while it does make it harder for responsible folks to get a credit card.
I tried to get a freaking student credit card for an intern who wants to build credit, but citicards wants to see some credit history. I suggested he get a secured CC to establish a baseline and apply at the end of the year. Its a start for him, but not where I started from
For people with lower limits who still want to control their utilization, if you pay off your card before your statement closes, you can keep your utilization down. Using the example above, if you spend $2000 per month and have a $5000 limit, if you pay that $2000 off in full, or down to whatever amount you want, before your bill is generated, you will control your utilization. Nearly all credit cards report the balance on your bill the the CRAs.
@Dax – I think there’s a difference between fully understanding the financial system and explaining to a teenager who is moving away from home the basics of credit cards. If young people understood the fundamentals of credit scores, bill cycles and interest rates, they would be better equipped to make decisions. I was lucky as I had parents that not only helped me to understand the basics but also added me as an authorized user in high school, so that when I set out on my own I already had some credit history.