Becoming a legal adult at the age of 18 comes with many new liberties, such as the ability to purchase tobacco or play the lottery. Of these many new privileges, perhaps the most overlooked yet beneficial privilege is the ability to sign up for credit cards.While most new adults avoid credit cards on the basis that they are evil or dangerous, a credit card, combined with a little discipline and responsibility, can be a convenient tool for establishing a good credit rating and saving money.
As most adults know, having a strong credit rating is extremely important. With a strong rating, one can easily be approved for loans and mortgages. Furthermore, those with sound credit ratings usually receive the lowest interest rates on the loans they take out. One of the easiest ways to build a credit rating is by using a credit card responsibly: By simply charging a few items to a card and promptly paying the bill in full each month, one can easily build reputable credit. Conversely, making late payments, no payments or carrying a high balance can have the opposite effect and actually hurt one’s credit rating. Thus, it is vital to keep track of charges and bill due dates, making sure to not spend too much or pay the bill too late.
Not only can a credit card help a young adult build priceless credit, it can also save him or her money. Since many cards offer some sort of cash back or points program, by charging everyday purchases and paying the bill in full every month, a cardholder can avoid interest charges while receiving a small amount of money back on his purchases. Further, a person with decent credit can open an account with a 0 percent introductory interest rate, essentially providing a free loan to the cardholder for six or 12 months, depending on the card. Of course, if the cardholder fails to clear the balance of the card before the introductory rate ends, he could be penalized with an entire year’s worth of accrued interest, depending on the card’s terms. Again, the key is responsibility.
On top of building credit and saving money, a credit card used wisely can provide numerous other benefits depending on the card. For example, some cards automatically provide extended warranties for electronic items purchased with the card, while others include traveler’s insurance in case a vacation goes wrong. All credit cards provide a safe and convenient payment method that removes the worry of losing irreplaceable cash or having to deal with annoying change.
So, if used responsibly, a credit card can help a young adult build an impressive credit history, save money and provide numerous minor benefits depending on the card. New cardholders must be careful, of course, lest they ruin their credit or spend hundreds or thousands of dollars on ridiculously high-interest charges. Simply keeping a careful watch on the card balance and knowing one’s budget limitations, however, should be enough to prevent such misfortunes.
Ultimately, a little discipline and a credit card can go a long way in building credit for the future while saving money today.
Caleb Slavin is a freshman entrepreneurial management major from Flower Mound.