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Hi Eva,
I am 28 years old, and I’ve never had a credit card. My parents raised me to be wary of them, and I’m honestly afraid to get one. I use debit or cash for everything and pay my bills (utilities and rent) on time — but I usually have a very low balance in my checking account. I’m worried that, if I have something that lets me spend money I don’t have, I’ll make even more impulse buys and end up in debt. But my girlfriend is telling me that, if I don’t have a credit history, I won’t be able to get a house someday. Should I get a credit card? And can I get a card even if I don’t have a credit history? — Jack
Dear Jack,
Well, Jack, one beer does not an alcoholic make. Being careful is good, and I applaud you for that. At the same time, however, you don’t want to be so cautious that you keep doors closed for yourself that you may need to have open in the future.
Like it or not, we live in a society where financial opportunities are ruled by credit reports and credit scores. This includes, as your girlfriend rightly points out, the ability to buy a house down the road. No credit history, no mortgage.
Your credit report and credit score will impact your finances — and your life — in numerous other ways. Credit scores determine how much interest you pay on car loans and the cost of your car insurance. Credit scores can also impact your ability to get a job, as many employers check out the credit report of prospective employees. Finally, many landlords also turn to credit reports when evaluating rental applications.
In short, we live in a country divided into the credit-haves and the credit-have-nots. You are young and just starting out building your financial future, and there is absolutely no reason you should disadvantage yourself unnecessarily by staying in the credit-have-not category.
So yes, it is a smart move to take out a credit card to start building your credit. More on how to do that below.
But first, let me allay your fears about using credit excessively. There is an easy way to protect yourself against temptation: Make a pact with yourself to pay your credit card bill in full every month. In other words, never charge more to your credit card than you can pay off at the end of the month. Practically speaking, this means setting aside an amount from your paycheck for your credit card bill each month (say, $200) and then simply never charging more than that $200 a month to your credit card.
Paying the bill in full each month is the cardinal rule of good credit card management. It will give you all the conveniences of having a credit card and enable you to build a solid credit score, without relying on credit tolive your life. And, if you can’t pay the bill in full one month, it’s a red flag that you need to take a look at your spending behavior.
So, how do you go about getting a credit card when you don’t have a credit history? Well, the first step is to simply apply and see what happens. If you’ve ever had a car loan or some type of personal loan, you will have some credit history, and it could be enough to qualify.
Apply with a credit card issuer that caters to people with many levels of credit. That way, if you don’t qualify for the first credit card you apply for, they will suggest a more suitable one for you. Try, for example, the Capital One Platinum Credit Card for people with little or no credit. If you don’t qualify for that, Capital One has a line of reasonably priced secured credit cards. These function as regular credit cards, but you have to make an initial deposit of $49 to $300 to secure your line of credit. You choose the amount of the deposit. A $49 deposit will give you a $200 credit line.
Last but not least: Since I know you want to be cautious about your finances, here is something to consider: You say that you usually have a low balance in your checking account, and that you’re afraid you’d make even more impulse buys if you had a credit card.
Forgive me if I’m wrong, Jack, but it sounds like you’ve made a habit of living paycheck to paycheck and don’t really have a budget or a savings plan in place. This is something you should be more wary of than getting a credit card. The reason most people get into debt — credit card or otherwise — is not because of overspending, but because they don’t have an emergency savings fund to tap into when unexpected expenses arise. And guess what — unexpected expenses always arise!
So to really be proactive about your finances, in addition to getting a credit card, educate yourself about the basics of budgeting and set up an emergency savings fund. I will bet you my bottom dollar that the day will come when you will be grateful you did.
