“I Want a Credit Card, But I’m Scared”

girl with credit card over mouthI got this question from a coaching client recently.  He is a recent college graduate who has never had a credit card but has been told that he should get one for his credit score.  He said he was afraid because he knows how damaging misusing credit cards can be.

 

I told him that I closely identified with this conundrum because I felt exactly the same way after I graduated from college.  I read that I should get a credit card to improve my score, but I also had developed a healthy fear of credit cards from my reading (though not personal observation).  I navigated that time successfully, given that I have never paid interest or late fees on credit cards and I now have confidence in my ability to manage my money.

 

My client and I talked through how he could resolve what to do for his specific situation, but the question inspired me to write this post, which can be more generally applied.  This outlines a general progression toward using a rewards credit card for every purchase, but the neophyte credit card user could certainly delay or discontinue after the first, third, or fourth steps.  The key is to go slow and assimilate each step.

 

1) Decide if you actually “need” a credit card.

 

This determination goes back to not believing the pro- or anti-credit card hype.  You can certainly live your life without a credit card.  But if you want to borrow money in the future without a bunch of hassle (like for a mortgage), it would behoove you to cultivate a high credit score.

 

If you have debt from an installment loan like a student or car loan, you already have a credit score and it’s probably decent if you haven’t done anything to screw it up.  You shouldn’t feel pressured to get a credit card in that case.  But if you have never been extended credit or you want to further improve your credit score, a revolving debt like a credit card (properly used) is a good option.

 

2) Choose a credit card for the long-term.

 

Assuming that you want a credit card to improve your credit score, the best idea is to open an account that you will keep active for a number of years.  The length of your credit history matters, so you don’t want a card that you will cancel in a short amount of time just to open another account.  For this reason, I recommend that your first credit card not have an annual fee.  Even if your current spending patterns justify the annual fee in terms of the rewards you will receive, you don’t know that those spending patterns will justify it a few years down the line.  You don’t want to have to choose between an annual fee on a card that no longer fits your lifestyle and continuing your credit history.

 

3) Explore making a payment and set up a system.

 

After you get your card, activate it and make one small charge.  Log into your online account and make some observations.  How long does the charge take to show up and when does it go from pending to firm?  What is the due date on the card?  Schedule a payment for the full balance and note how many days it takes to go through.  Consider setting up an automatic payment for the full balance on the account several days in advance of the due date if you are comfortable with that approach, though I recommend paying the account manually during the month the money was budgeted in.

 

4) Slowly increase use.

 

This is a step that can take quite a bit of time – months or years.  While using your credit card exactly like debit (only make a purchase that you already have the cash to pay for, as part of your budget), make a purchase every month to few months.  As you increase your confidence in your track record of paying off your card and continuing to live within your means, you can increase your use to monthly.  Perhaps start by putting every purchase of a certain type on the card, like groceries or gas.  You might set up a recurring payment to come out of the account.  Eventually, if you would like, you can get to the point where you are putting all eligible purchases on the credit card.

 

5) Begin optimizing rewards.

 

It would be nice if your first credit card provided some rewards, but it’s certainly not a necessity.  Don’t feel bad that you are missing out on potential rewards as you slowly get accustomed to using your credit card – it’s far more important to establish yourself as a responsible credit card user than to get a few dollars or miles.  It’s easy to get caught up in the excitement of racking up rewards, so you need to guard against that.

 

But as you are ready, you can explore adding more credit cards to your usage mix to maximize the rewards on your typical spending patterns.  There are two basic strategies: 1) add cards that have long-term rewards potential, with high rewards percentages for the spending categories or retailers that you use most and 2) go through cards with high sign-up bonuses sequentially, using only one at time until you meet the minimum spend requirements.  I recommend the first strategy initially until you become more familiar with the credit card game before you start churning, though both strategies are, of course, completely optional.

 

This is the approach I took, and it was a 4+ year journey from step 1 to step 5.  When I got my first credit card, I made only occasional purchases – one every few months.  I used my debit card virtually exclusively so I built confidence in my ability to live within my means and pay my bills on time.  I didn’t start using a credit card regularly until after Kyle and I got married, because at the time he had a gas card that gave good rewards.  After the rewards on our gas card were downgraded, we started playing the rewards game more, choosing cards for their long-term rewards potential and even for a short-term churn.  We are still perfect in our usage of credit cards, which I credit to my long period of using debit exclusively and the systems we put in place to make sure we don’t get into trouble with the cards (chiefly, our budget).

 

Really, using credit cards to increase your credit score only requires a lot of available credit and small balances, which you can achieve with only the most occasional purchase and regular requests for credit increases or applications for new credit.  Even the most apprehensive credit card user can easily achieve this without spending a dime on interest or fees if he is conscientious.

 

When did you get your first credit card and what was your state of mind?  How long did it take you and what were the steps you went through from your first credit card to your current strategy?  Do you think a person who is scared of credit cards should get one?

 

photo from Free Digital Photos

 

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17 Responses to "“I Want a Credit Card, But I’m Scared”"

  1. These past few months I’ve been thinking to get a credit card because all of my friends have their own credit card and when they’re trying to ask me if I do have my own CC and I answered “NOPE” I can see their eyeball rolls. I’m really afraid to get a credit card because I’m thinking what if I can’t pay the monthly bills?
    Clarisse @MakeMoney Your Way recently posted..How does Currency Trading Work

    1. Emily says:

      If you can pay your monthly bills now you certainly have the ability to do it if you put the purchases on credit cards instead of debit, as long as you don’t fall victim to the “buy now, pay later” mentality. If you can’t pay them now, getting a credit card is definitely a bad idea! But don’t let peer pressure sway you.

  2. Ashley says:

    This is great advice! I forgot about it until reading this, but I definitely felt scared when I got my first card. I think I was 17 or 18- my mom suggested that I get one and she cosigned for me.

    All throughout college I charged one or two things occasionally and paid it off immediately just to build up my credit. After graduating and closely studying my finances, I figured out how much I could charge and still pay it off in total at the end of the month. So it was probably a 5-6 year learning process- wow, I’ve never realized it took that long before! 🙂

    I would definitely recommend that people get a credit card even if they’re scared. You’ll be able to teach yourself how to manage credit and you can build up your financial confidence!
    Ashley recently posted..Egg, Vegetable & Quinoa Breakfast Casserole

    1. Emily says:

      That’s good that you had your mother beside you to help you learn how to use credit responsibly. I think if one is eager to speed from not having a credit card to playing the rewards game full-on, that is warning sign that use of credit cards could turn into a problem!

  3. Mrs PoP says:

    I think that if you’re educated enough to sorry about credit cards, you’re probably ready to use them responsibly. Like most tools they can be incredibly helpful, but can be dangerous if you forget what you are holding and act irresponsibly.
    Mrs PoP recently posted..Woulda, Shoulda, Coulda? Regrets On Debt Payoff?

    1. Emily says:

      Yes, concern about using credit before you even start is a good sign, which is why I am encouraging their careful use. But if the track record is still uncertain, first-time users should progress slowly.

  4. Great tips! I think having a credit card and using to learn it properly is really important for young people. Obviously there is the risk that they could misuse it and get into debt, but I think if they know of the consequences of doing it and the benefits of using the credit card right (credit score, rewards), then it’s all good.
    Mo’ Money Mo’ Houses recently posted..Career Lessons from Sheryl Sandberg’s Lean In

    1. Emily says:

      I think learning to use a credit card properly is really only important for people who don’t have a credit score or who want to improve their credit scores. If you just learn how to use a debit card a credit card is an easy transition for those who already have credit, at whatever point they want to switch.

  5. If you’ve never had one, I suggest applying for one through a credit union as they may be more likely to have a lower credit limit.

    Also don’t forget the safety aspect–if they’re using their debit card for all of their credit card transactions, they are not protected by the anti-fraud laws in the US that protect traditional credit cards.
    Tara @ Streets Ahead Living recently posted..Holiday shopping when you’re broke like me

    1. Emily says:

      If you have no credit whatsoever it is going to be difficult to find a credit card issuer! Going to a credit union is a good tip.

      I agree credit is advantageous over debit in many ways, but I don’t really want to talk anyone into using a credit card if they really don’t want to!

  6. My parents put me on one in college– it was only for books and the occasional clothes or other necessities purchase (not food– they paid for a meal plan).

    My mindset has always been not to spend more than I have. I’ve always paid off the credit card in full at the end of each cycle (with one exception when we took a 0% loan while moving between jobs when a stock we sold took too long to get to our bank account). So when we didn’t have much in cash, I would keep track of what we spent on the credit card. Now I track each month after the fact and if we’ve gone too high one month we cut back the next. But back in the day when money was tight, I knew exactly what we’d purchased compared to how much we had in the bank account.
    nicoleandmaggie recently posted..On privilege and patriarchy and Gwyenth Paltrow

    1. Emily says:

      I think as long as you have that principle of not spending more than you have and you set up a system for paying the balance fully and on time, you will be good to go with using credit cards!

  7. Jon Maroni says:

    I love this post mostly because of step #4 “increase use slowly.” This is really solid advice for people who are freaked out by credit cards. You really can leverage the potential rewards of a solid credit card if you ease your way into using it. My wife and I now use our credit cards for almost everything and the rewards really add up. We started out only using it for a few purchases and now we use it as our main purchasing vehicle.
    Jon Maroni recently posted..The ACA and You- What It Means for Your Finances

    1. Emily says:

      Thanks! It’s so tempting to go full-bore but it’s more prudent to be careful and go slowly.

  8. I am glad when people are a little afraid of credit cards. They will probably use them correctly. The main thing to make sure credit card users understand is that credit cards are not free money. They will have to pay for their credit card purchases. Carrying debt on their credit cards essentially increases the cost of the items they bought with credit. As long as they purchase things they can afford with money they’ve already saved, and pay their credit card balances in full each month, they are golden.
    Bryce @ Save and Conquer recently posted..Free Is Almost Never Free

    1. Emily says:

      I agree, this is a healthy fear! You points are very good. I didn’t include them in this post but I should have!

  9. […] and I were married, I had one credit card but I very rarely used it to make purchases (I was a bit scared of credit cards).  Kyle had one gas rewards credit card that he used for everything.  At first, I had to get on […]

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