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First bank account/credit card, what the hell do I do?
TwistedJester
Registered User regular
Registered User regular
So I'm a 23 year old college student and I'm going to graduate in the spring. I figure it's about time I open my own bank account and get a credit card, because using the debit card that is also in my mother's name at our credit union isn't doing much to build my credit. The only problem is, I have no idea what to look for here. I am completely in the dark. Do I create an account with PNC or National City or what? Any kind of help would be GREATLY appreciated.
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Ask them. Do you pay for any items on a monthly basis? These help build credit.
Credit Union probably has better rates than the banks, but it can't hurt to check.
Other than that, just find a credit card with a cool perk (air miles, amazon gift certificates, cash back on gas, whatever) and use it. Use it for everything, always pay it off before it incurs any interest. That's called being a deadbeat, because you aren't carrying any debt with the CC company, (which is one of the ways they make money off you, hence deadbeat.) It doesn't build you that much credit, but it... you know, keeps you from diving into a horrible pile of CC debt from which you will never return. If you get a cool perk and always pay your bills on time, you basically get whatever perk the credit card offers for free.
I strongly recommend you track your purchases on the CC with a piece of paper, as if you were managing a bank account. It's unnecessary, especially when you can log into your CC's website and check your balance. However, it makes you think about what you're spending. Studies show that people who use credit cards or debit cards spend more money than people who use cash for everything. It's a simple disconnect, swiping a card doesn't register in your brain as much as pulling out a wad of $20's and handing them to someone, so you don't consider your expenditures as carefully. Tracking it on a piece of paper forces you to reconcile your spending habits every day, which keeps you from falling into debt and also discourages impulse purchasing.
There are several catches to this method though. First, you must pay off the balance of that card IN FULL EVERY MONTH. I let $200 ride for the first year thinking that would help my credit, but I don't think it made much difference. Second, if you can pay your bills near the end of the month that would help to lower your overall finance charge because most cards are going to charge finance based on average daily balance. This is also why it is important to get a card with some sort of rewards or cash back. If you are able to get a card with an interest rate <=12% and 1% cash back you can actually work the system in a way that the company pays you to use their card. I have yet to pay more in interest each month than I get back in rewards. Make sure the rewards are worth it though...some will give you more of a percentage back than others and it may just be best to find a card that gives a solid 1% cash back. It should be noted that rewards on a card will increase the interest compared to a non-rewards card. It is minimal (1-3%) and is worth it.
I came out of college three and a half years ago with absolutely no credit history, and no student loans to help me build that credit. I got an AMEX Blue card the week I graduated and started doing exactly as I have described above. On average I put on and pay off $1200 a month, and in that time my credit score has gone from non-existent to ~815...which was a godsend when it came to purchasing a home.
In the end the most important thing is to pay that credit card in full every month. There should be almost no exception to this rule. Do not let a credit card act as free money...spend only what you have or you will pay for it in the long run. Good luck!
Also, I forgot to mention earlier that I have no student loans.
Also, isn't AmEx sort of limited in terms of where it is accepted?
Sort of. Visa and Mastercard are accepted almost everywhere. AmEx is next. Then Discover, which sucks and you should never use. AmEx is considered more selective about their cards, though, and will generally offer you better deals, or just better lines of credit. I don't use my AmEx much because it doesn't have a great reward system, but I could put a new car on it, so I like having it around for emergencies.
What Darkewolfe said is pretty much what I have run into, so that may not be the best card to have if it is going to be the only card. I bank with Wells Fargo so I have a backup, Visa labeled debit card to use in case AMEX isn't accepted. The reward system is not the best because some rewards will only offer a 0.5% return on your purchases, but I always save mine up for some major home purchase and then get Home Depot gift cards that are on the 1% back tier (got $400 off my washer/dryer this way). I have another Bank of America card that does a strict 1% cash back and has a lower interest rate, but the catch is you get the money once a year...where as I can order a Home Depot gift card whenever i reach 5000 points.
He's also right about the credit limit...in three years it's gone from 3k to 25k. Although you'd have to be crazy to put that much on a credit card if you couldn't pay it off immediately.
For a good self-study site I'd recommend Bankrate.com. There is a ton of financial advice there and I have found it to be reasonably helpful. Also having a WaMu (now JP Morgan I guess) credit card is beneficial since they give you your credit score each month for free. I have never even used that card, but it's helpful in keeping track of my credit history.
Really? I might app for one of those just for that.
If you can, get one of each of the three major credit cards (VISA, MasterCard, AmEx). Since you're just starting out, you'll probably just get a basic card - eventually you'll want to get a Platinum or whatever the best option is for that particular card, since they usually give good bonuses and a better APR.
Buy everything on the credit card. However, don't make the mistake that lots of people make - credit cards should not be viewed as carte blanche to just go crazy and buy a whole bunch of crap you don't need. I have a friend who has had to get new cards because his were filled. His credit rating is not great and he's having trouble getting loans as a result.
Instead, know exactly how much money you have in the bank at any one time. If you really need to, go over that, but try and keep your credit card purchases in-line with your actual balance. This will require a fair bit of record keeping, but so long as you update your ledger at the end of every day you've used your credit card, you'll know exactly what your balance is.
Pay off the balance at the end of every month. Try not to carry a balance too much - it sounds like common sense, but too many people have no issue with just giving the bank money. They exist for people who pay off the minimum and nothing else. However, don't make the other mistake of never using your credit card. Banks want people who use their credit cards but also don't miss payments, thus why I say 'use it for everything'.
Finally, never have more than one of each type of credit card if you can avoid it. When you're applying for a loan one of the things the banks check (at least in Canada, I don't know about in the States) is how much available credit you already have. So if you have 34 000$ worth of credit cards, they'll make their decisions based on a hypothetical situation where you max out that 34 000$ worth of credit. That's an oversimplification, but as a rule of thumb you don't want to have more credit than you need.
The basic tenet of credit cards - don't spend more than you have. Follow that and you should be fine, and within a couple of years you'll have a decent credit history built up.
Try not to carry a balance EVER. If you carry a balance, it means you spent money that you didn't actually have. If you spent money that you didn't actually have, are you expecting your spending habits and income to change drastically in the next month? There are certainly exceptions, but it's a powerful general rule. If I live week to week, make $1000 every two weeks, and do all my spending on my credit card, there's no reason to believe that the next month I won't have just as many expenses to deal with, and therefore will be saddled with credit card debt I will find difficult to pay off. If you're doing well and setting aside money for emergencies, then it makes more sense to pay your credit card off immediately, and then "owe" your savings, because the interest you're charged to the CC will exceed any interest you're earning off of your savings.
I say 'too much' because, occasionally, you can't avoid carrying a balance. For example, I had to take an extra two classes to graduate in university, and I didn't have the money on hand to pay my credit card off right away - so I carried a balance. As a rule, though, I pay off my cards in full at the end of every month, because as you say, you shouldn't spend money you don't have.
If you get yours through a bank, it'll most likely have a major credit card logo on the front- that means you can use the debit card anywhere that credit card can be used.
No interest, no bills, all the functionality, and it builds your credit the more you use it. I'd say the debit card is your best way to go.
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I'd almost say the reverse - Discover tends to have better cash-back/rewards type stuff than most basic cards (1% on everything, 5% on online purchases through their website (which includes a lot of best buy/target/dell/apple type places), and you can get gift cards instead of cash that make it more than 1% as well; I like it better than most Visa/MC (other than the 5% gas station-type ones)
As for AmEx, I'd say getting an annual fee card is silly unless you're going to make use of their fancier services; other than getting one through Costco (where it's free w/ membership fees) or Jetblue (for miles), I wouldn't see a need for it
Debit cards do not in any way build your credit. Using a debit card is essentially issuing a paperless check that clears instantly.
Edit: Also, your credit score is not helped by keeping debt month-to-month. You should always pay off your credit card balance in full each month if you can afford it.
You can get one free report from each credit union once a year (three reports). Use this government site.
https://www.annualcreditreport.com/cra/index.jsp
The site will show you your credit report but not your score.
Discover has better rewards, but it depends on how many cards you want to be carrying and using on a regular basis. I'm completely pulling numbers out of my ear, but I'd say Discover is accepted at most in 20% of the places you might visit. I'm sure that's grossly wrong, but we'll settle with "Lots of places don't take Discover." If you want to roll with a Discover and a Visa Debit Card, or a Discover and a Visa CC that you have to swap between and manage the balances on, it'd work. Discover is a terrible choice as your only form of e-payment, IMO, though.
Your basic AMEX has a fee associated with it because it is not a credit card, it is a charge card and must be paid in full each month. AMEX Blue is a credit card and has no such fee connected to it. It is just like any other credit card...except not accepted everywhere. It's what I use, I am happy with it, but it is not the best card out there for many reasons. For me it's more about the low interest rate, rewards, and the fact that it's been my primary card since I started building my credit.
Hachface is correct...debit cards do not affect your credit (at least not positively, I have never overdrawn so I don't know how that affects anything). If you get a copy of your annual credit report (and this should be done every 4 months with a different credit agency) you will not see your debit card on there as a credit account. It is just like writing checks but faster.