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I spend about $20-30 a week on my debit card, with periodic $200-300 purchases every few months. I've thought about getting a credit card the moment I turn 18 and using it to buy everything, then immediately paying it off. Assuming I only use it to buy things I can afford (which I trust myself to do), essentially treating it as a debit card, is this a good idea? Or should I wait until I'm a bit older?

Assume that I will only spend money I have in my bank account at the time I spend it and that I will keep track of how much I spent and never spend more than I have.

Joe Taxpayer recommended I post an update: I ended up getting a card, and from my perspective the only thing that's changed is that it takes things ~24 hours to show up on my statement and I don't have to enter a PIN when I checkout. Should I add this to the question? I know on other SE sites people generally don't like updates in the questions

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    If you're in the US, I really recommend getting a cash back card. If you anticipate spending more than $400/month, then Citi's 2% cash back card should be good; if not, try Bank of America's Better Balance rewards ($100/year if you follow the rules). Forget about the interest rate; you shouldn't carry a balance in the first place, and you certainly don't need to in order to build a reasonable credit history. – Mehrdad May 29 '15 at 8:37
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    Short answer: yes. But beware the credit card float - paying for last month's purchases with this month's income. Credit card float is how you end up getting in over your head with a credit card. See this: youneedabudget.com/support/article/… – Ian R. O'Brien May 29 '15 at 18:09
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    Side comment: Consider getting a driver's license at the earliest possible, even if you don't plan to drive more than a few times in the next five years. In some states there is an insurance discount based on how long you've been licensed, and they don't ask whether you've actually been driving; the savings when you are ready to drive your own car can be many times what "needlessly" renewing the license cost you. And being able to rent or borrow occasionally can make life significantly easier. – keshlam May 30 '15 at 3:14
  • I got a licence as soon as I turned 16, but that was last year. Thanks for the tip though. – Jon May 30 '15 at 3:45
  • How organized are you? Do you always arrive a little early to appointments? How organized is your living space? What are your grades like? People are often unknowingly irresponsible and disorganized before they're 25 (there's a neurological explanation for this). Good credit is more useful in your mid-late 20's than in your early 20's. I'd say, unless you're a hyper-organized A-student, wait until you're 25. You can have good credit in a year if you want. There's much less risk of screwing it up and not having it when you want to buy a house, etc. – Hal May 30 '15 at 22:38

11 Answers 11

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Yes, it is a very good idea to start your credit history early. It sounds like you have a good understanding of the appropriate use of credit, as a substitute for cash rather than a supplement to income. As long as you keep your expenses under control and pay off your card each month, I see no problems with the idea.

Try to find a card with no annual fees, a low interest rate if possible (which will be difficult at your age), and with some form of rewards such as cash back. Look for a reputable issuing bank, and keep the account open even after you get a new card down the road. Your credit score is positively correlated with having an account open for a long time, having a good credit usage to credit limit ratio, and having accounts in good standing and paid on time.

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    You aren't likely to get a terribly low interest rate with no credit history, and rewards cards also don't generally have a low interest rate even with good credit, so more than a low rate your goal should be to pay no interest. To that end make sure the card has a grace period otherwise interest starts accruing at purchase. – briantist May 29 '15 at 2:36
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    @briantist At least in the United States, I thought all credit cards were interest-free so long as you paid in full (by law?). Is that correct? (OP's profile says they're in the US.) – Mike Haskel May 29 '15 at 4:48
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    @briantist my understanding of cards in general is that if you don't pay it off by the end of the grace period, the interest is applied retroactively. This may be what people are talking about with the Amazon card (though I have no specific knowledge of that one in particular) – Kevin May 29 '15 at 15:06
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    @Kevin that's not what they're taking about, these are all people who claim to have paid on time with automatic payments. That reviews are, ironically, on Amazon. I realize we're getting a bit off topic though. In any case, I don't know whether it's a law or not, but it's still good practice to look for the grace period in the terms, if only to find out what conditions apply. – briantist May 29 '15 at 15:17
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    @Chipperyman aside from the things mentioned, look for cards that you are likely to be able to be approved for, i.e. college student cards or similar - you don't want to start off by being denied credit X times. – user2813274 May 29 '15 at 15:36
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The length of time you have established credit does improve your credit score in the long run.

As long as you can avoid paying interest, you might see if you can get a card with cash back rewards. I have one from Citi that sends me a $50 check every so often when I have enough rewards built up.

9

Yes, as long as you are responsible with the payments and treat it as a cash substitute, and not a loan. I waited until I was 21 to apply for my first credit card, which gave me a later start to my credit history.

That led to an embarrassing credit rejection when I went to buy some furniture after I graduated college. You'd think $700 split into three interest-free payments wouldn't be too big of a risk, but I was rejected since my credit history was only 4 months long, even though I had zero late payments.

So I ended up paying cash for the furniture instead, but it was still a horrible feeling when the sales rep came back to me and quietly told me my credit application had been denied.

  • That happened to my father in his 50s. He learned his lesson and established a credit history after that. – Loren Pechtel May 31 '15 at 1:46
7

Not only should you do this, you should tell your friends to do it too. Especially if a parent comes in to the bank with the child, banks fall over themselves to provide a card to someone whose only income is allowance. Really. Later, if you're 21 and your car broke and you don't get paid for another 11 days, NOBODY will lend you the money (or those money mart places that charge 300% a year will) to fix it. Never mind score (and yes for sure having a good score will be a result, and a good one) just having the card for emergencies makes all the difference to your early twenties.

My kids have several friends who now can't get credit cards (some are students, some are underemployed) and end up missing paid days of work due to car troubles they can't pay to fix, or using those payday lenders, or other things that keep you poor. Get one while you can. Using it sensibly means you will have a great credit score in a decade or so, but just plain having it is worth more than you can know if you're not 18 yet.

  • Greogory Introduce them to secured cards(For e.g- bankofamerica.com/credit-cards/credit-cards-to-build-credit.go) This way they pay for the card ahead of time (I suppose can be as low as $300) so they can start building credit. Also there are a ton of financial institutions that can give student credit cards. I did get mine as well. That way they can start building credit. – pal4life Jun 1 '15 at 13:01
  • Yeah, teach them not to have any money saved for emergencies and live paycheck to paycheck and rely on the card when the car breaks down. – AbraCadaver Jun 1 '15 at 15:54
  • @AbraCadaver you try living on $11/hr 20 hours a week and see how much you save for emergencies. My kids are both savers - darn good ones - but they have friends who miss work because they don't have any financial cushion to deal with things that happen (and that happen more often when you have a low income - eg your beater car breaks down or your low-rent landlord just refuses to fix something.) A little empathy would be appropriate, not scorn. – Kate Gregory Jun 1 '15 at 16:01
  • No scorn here. If they borrow $500 to fix the car they have maybe a $15 minimum payment for over 3 years. If they can afford that, start saving that and possibly more now. – AbraCadaver Jun 1 '15 at 16:07
  • It's not either-or. The kid with $100 saved over a year can't afford the $200 car repair. The kid with a credit card can, and earns a day's pay which is probably less than $50 but makes the difference, right? But my experience is the kids who got credit cards in high school also got some other headstarts and have less urgent need for a few hundred dollars than the kids who did not get credit cards in high school. Life is complicated and not always fair. Telling 18 year olds not to get credit cards because you think saving is better is coming from a place of privilege. – Kate Gregory Jun 1 '15 at 20:55
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No, don't open a credit card. Get used to paying cash for everything from the beginning. The best situation you can be in is not to have any credit. When it comes time to buy a house, put down %30 percent and your 0 credit score won't matter.

This will keep you within your means, and, with governments gathering more and more data, help preserve your anonimity.

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    Well, the government already knows everything about me, and I probably won't be able to afford 30% of a house. Plus, I'd get a lower interest rate, right? – Jon May 29 '15 at 21:51
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    Well, you wouldn't attempt to buy the house until you had the 30%. And, with 30% down and no debt you'll get a prime rate. Besides, the objective when buying a house shouldn't really be to get the best rate, it should be to pay the least. Having a higher rate for fewer years might well be best. 30% down with a 10 yea mortgate the best idea in my opinion. You might not be able to get the house you really 'want' but you'll have a paid for piece of property that you can then sell or rent out for another income stream when you move. It's not easy to live like this but it's good if you can. – Rex Chandler May 29 '15 at 22:44
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I also feel it's important to NOT get a credit card. I'm in my mid 30's and have had credit cards since I was 20, as has everyone I know. Every single one of those people, with the exception of my dad, is currently carrying some amount of credit card debt - almost always in the thousands of dollars.

Here is the essential problem with credit cards. Everyone sets out with good intentions, to use the credit card like a debit card, and pay charges off before interest accrues. However, almost no-one has the discipline to remember to do this, and a balance quickly builds up on the card. Also, it's extremely easy to prioritize other bill payments before credit card payments, resulting in a balance building up on the card.

It's almost magical how quickly a balance will build up on a credit card. Ultimately, they are simply too convenient, too tempting for most human beings.

The world, and especially the North American world, is in a massive debt crisis. It is very easy to borrow money these days, and our culture is at the point where "buy now pay later" is an accepted practice.

Now that I have young children, I will be teaching them the golden rule of "don't buy something until you have cash to pay for it in full!" It sounds like an over simplification but this one rule will save you an incredible amount of financial grief over time.

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    I'm sorry, but just because everyone you know (your dad excepted apparently) has made bad choices with credit cards, doesn't mean everyone does. I opened a credit card account with a low limit when I was 18. I've never regretted that decision. – NL - Apologize to Monica Jun 1 '15 at 17:31
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    A credit card is a snare for the unwary or unlucky. Never do business with one. Run for your life. – superluminary May 5 '16 at 13:05
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I will disagree with the other answers. The idea that there is some to establish a "credit history" is largely a myth propagated by loaners who see it as positive propaganda to increase the numbers of their prospective customers.

You will find some people who claim they were rejected for a card because they had no "credit history," but in every case what these people are not telling you is they also had no income (were students, house wives, or others with no steady income). Anyone who has income can get a credit card or other line of credit regardless of their "credit history." Even people who have gone bankrupt can get credit cards if they have proven income.

If your answer to this is that "you have no income, but still want a credit card", I would advise you to re-read that sentence several times and think carefully about it.

I have never had a credit card and never missed having one, except when trying to rent cars which was somewhat complex and annoying to do in the 2005-2010 time period without a credit card.

Credit cards have a number of disadvantages:

  • They provide a temptation to waste money on luxury goods you do not need
  • The interest rates on credit cards are relatively high
  • You greatly increase your chances for having your identity stolen
  • All your purchases using the card are tracked and the information is provided to various organizations and people around the world, many of whom you would not want having your purchase information if you knew who they were.

I definitely agree with those who will tell you credit cards are convenient, they are, but for someone who wants to be financially prudent and build wealth they are unnecessary and unwise.

If you don't believe me, read "The Total Money Makeover" by David Ramsey, one of the most famous and best-selling books ever written on personal finance. He actually will give you much better and detailed reasons to avoid CCs than me. After all, who am I, just some dumb rich schmuck with lots of money and no debt and a happy life.

Comment on Culture

I think it is pretty funny we have a lot of spendthrift Americans in this thread basically telling the OP to get lots of credit cards as soon as possible. If you asked the same question in Japan you would get completely different answers and votes. In Japan its hard to even use credit cards. The people there are much more responsible financially than Americans; the average Japanese person has much higher wealth than a person with the same income in the United States. One of the reasons for this, among many, is that the average Japanese person does not use credit cards. A Japanese person, if you translated this question for them, would think the whole thing a typical example of how foolish Americans are.

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    This does not match my experience. When I moved to the USA I had a good job as a programmer-analyst with a US-based multinational. I could not get a credit card until after I had opened some store charge accounts and used them. – Patricia Shanahan Jun 1 '15 at 10:00
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    Having NO credit file makes identity theft easier, because the bank doesn't have correct information to compare the fraudulent application against. Furthermore, you can have lots of money and no debt and a couple credit cards in the wallet. Remember that Ramsey's advice is oriented toward people with a history of financial struggle. – Ben Voigt Jun 1 '15 at 15:23
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    @BenVoigt LOL, as somebody who works in the field of cyber warfare, I can assure you that 99.9% of people who get targetted both by common cyber criminals and by foreign agents for identity theft are those with complex credit profiles, meaning people with lots of credit cards, among other things. – Five Bagger Jun 1 '15 at 15:39
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    @Tyler: Well, there's the question of leaking the information in the first place, vs detecting the fraud. Having more accounts definitely makes the first more likely. Having no accounts makes the second part (detection) impossible. – Ben Voigt Jun 1 '15 at 15:43
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    There is a range between "zero" and "many" that you haven't considered. I only own one credit card. I use it for cash rewards and always pay it off in a timely manner. On top of that, it has more security measures than a debit card, and if someone does steal my credit card information, none of my money is lost - it's still an inconvenience, but it's less of an inconvenience than having to hope my credit union will refund my account after finding my debit card information has been stolen. And I need a card of some kind for most electronic transactions. – Zibbobz Jun 1 '15 at 17:37
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Assuming I only use it to buy things I can afford (which I trust myself to do), essentially treating it as a debit card, is this a good idea?

This is definitely a good idea.

From my own experience, before I got my first credit card through my local bank (age 18), I tired to apply for a card that has cash back rewards and was rejected because I didn't have any credit history. After I had the card from my bank for 6 months, I applied for this Capital One card that I've had ever since.

2

I want to recommend an exercise:

Find all the people nearby who you can talk to in less than 24 hours about credit cards: Your family, whoever lives with you, and friends.

Now, ask each of them "what's the worst situation you've gotten yourself into with a credit card?"

Personally, the ratio of people who I asked who had credit cards to the ratio of people with horror stories about how credit cards screwed up their credit was nearly 1:1. Pretty much, only one of them had managed to avoid the trap that credit cards created (that sole exception had worked for the government at a high paying job and was now retired with adult children and a lucrative pension). Because it's trivially easy over-extend yourself, as a result of how credit cards work (if you had the cash at any second, you would have no need for the credit).

But do your own straw poll, and then see what the experience of people around you has been. And if there's a lot more bad than good out there, then ask yourself "am I somehow more fiscally responsible than all of these people?".

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    You sound like a fan of Dave Ramsey. Am I mistaken? – JTP - Apologise to Monica May 30 '15 at 2:14
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    Haven't heard of him, but I could check him out. – Kzqai May 30 '15 at 2:19
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    Worst it's been for me, there were a few times, many years ago, when I ended up paying interest on my credit card. Absolute horror show ;-) – Steve Jessop May 30 '15 at 12:50
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    @SteveJessop - I hope you are ok now. Remember, "there is no responsible use of credit cards." None. They are the work of Satan himself. – JTP - Apologise to Monica May 30 '15 at 18:35
  • While fiscal irresponsibility is certainly associated with bad credit, "horror stories about credit cards" (at least in my circle of friends and coworkers) have nothing to do with fiscal responsibility and everything to do with buggy bank systems. I have in my hand a bank statement charging a "minimum interest fee" of $1.50, right next to "balance subject to interest charges" of $0.00 and interest calculation of 0.00, and an agreement that says that the minimum fee applies whenever interest is owed (clearly, it isn't). The card is the BoA Better Balance Rewards mentioned in the comments. – Ben Voigt Jun 1 '15 at 15:20
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This is a good idea, but it will barely affect your credit score at all.

Credit cards, while a good tool to use for giving a minor boost to your credit score and for purchasing things while also building up rewards with those purchases, aren't very good for building credit.

This is because when banks calculate your credit report, they look at your long-term credit history, and weigh larger, longer-term debt much higher than short-term debt that you pay off right away. While having your credit card is better than nothing, it's a relatively small drop in the pond when it comes to credit.

I would still recommend getting a credit card though - it will, if you haven't already started paying off a debt like a student or car loan, give you a credit identity and rewards depending on the credit card you choose. But if you do, do not ever let yourself fall into delinquency. Failing to pay off loans will damage your credit score. So if you do plan to get a credit card, it is much better to do as you've said and pay it all off as soon as possible.

Edit:

In addition to the above, using a credit card has the added benefit of having greater security over Debit cards, and ensures that your own money won't be stolen (though you will still have to report a fraudulent charge).

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Definitely not. Credit cards only exist to suck you into the soulless corporate system. What you want to remember here is that you can't trust banks, so you'll want to convert all your savings into some durable asset, say, bitcoins for example, and then hoard them like Smaug until after the Fall.

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    some durable asset, say, bitcoins for example what? – Jon May 30 '15 at 4:05
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    I want to learn how to sleep on bitcoins like Smaug – Shog9 May 30 '15 at 4:19
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    @Shog9: you could print out your wallet onto fabric and make it into sheets. Just watch out for short hairy burglars. – Steve Jessop May 30 '15 at 12:52
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    Suggesting moving all of one's savings into bitcoins is reckless. – Chris W. Rea Jun 1 '15 at 16:40
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    Suggesting that one should act like Smaug is liable to get your jewels stolen by dwarves and your hide pierced by some upstart bowman. – Zibbobz Jun 1 '15 at 17:35

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