This is the story of Emily Starbuck Gerson, a 23-year-old who lives in Austin, Texas, and works as an editorial assistant at CreditCards.com.
Living without credit
I grew up without much exposure to credit cards. My mom mostly wrote checks, and my dad (a criminal defense attorney) paid for everything in cash. I was taught to save until you could buy something, which is still a great lesson. My first major purchase was a Sega Genesis in first grade, which I still own (and still works). I painstakingly saved my $1.25 weekly allowance until I could afford it.
As I grew up, the more I heard about the horrors of credit card debt, the more I became afraid of credit cards. When I turned 16 I received a copy of my mother’s MasterCard, but it was for gas and emergencies only, so I just thought of it as Mom’s money. At university, my college fund, part-time jobs and some allowance sustained me. I thought I’d never need anything but my debit card.
Then one day in college while shopping at Victoria’s Secret, I said yes to the offer for the perk-filled Angels Credit Card. I said no a million other times, but when I learned you could pay it off in-store following the purchase, I caved. I was promptly denied, but I didn’t really understand why. I later learned that store credit cards have very high interest rates, which can be dangerous if you carry a balance…so it is probably best I didn’t get one before I truly understood credit responsibility.
When my boyfriend got his first credit card last year, I said it was stupid. He sighed at my ignorance and said we must demonstrate responsibility with a credit card in order to build good credit, which was vital for the future. Ironic. I called my omniscient mother for confirmation. She agreed, and added that I couldn’t get a home or car loan without credit. Not to mention rent a hotel room or car. Having no credit apparently isn’t much better than having bad credit.
Half-way through my last year of college, I went to my bank (BofA) for a credit card. They gave me the Student Visa Platinum Plus — a no-frills beginner’s card, even though it sounds fancy. I can manage it online with my other accounts, so it’s really easy to transfer money and monitor balances. If it is possible for you to get a card through your bank for that very purpose, I highly recommend it.
Saved by the credit card
I began making occasional purchases with the card, even though I didn’t have to. I thought it was silly. After graduating, I had a PR/marketing job for a few months, but the company shut down. When I found this job, I was psyched…especially to learn more about personal finance, now that I realized I knew very little. The problem? I had 10 days between the two jobs, and my first paycheck was for only a week’s work. It would be three weeks before I was paid again. At first I panicked — I had money in savings, but I didn’t want to completely drain it. And I’d just told my dad I was ready to be financially independent. What’s a girl to do? Then I remembered I had a credit card! Hallelujah.
In those weeks, that credit card saved my behind more than once. One example: when my dog began copiously vomiting, I raced her to the vet. I was thrilled the tests showed she was OK, but felt sick myself when the bill totaled $240. With no income to cover it, I put it on the Visa, knowing I could pay it off with my next paycheck.
It’s a huge relief to have a credit card as a back-up, as long as you remember the money you’re spending isn’t yours. Because I have been so careful about paying my balance off, my credit limit was recently raised. That’s a plus you get for being responsible, though avoid a high limit that will tempt you to spend way beyond what is necessary.
The most important thing I’ve learned is that building good credit is vital. When you apply for car insurance, they run a credit check, and those with worse credit usually have higher rates. When you apply for a job, many companies run a credit check to ensure you are financially responsible. When you apply to rent an apartment, a credit check determines whether or not you have a reliable payment history. Having bad credit or no credit can make your life incredibly difficult.
After learning all about reward cards for my job here, I felt like I was missing out with my plain-Jane student card, so I recently applied for a new card through my bank. My good history thus far allowed me to be approved. My credit limit is a measly $500, but I will soon prove worthy of a higher one. The reward program gives me an excuse to make purchases with the card. I am excited about a credit card for the first time, and it’s a cool feeling. I was also approved for an Angel’s card after building credit with my student card, though I haven’t once remembered to use it.
The moral of my story
If you are young and devoid of a credit card for whatever reason, strongly consider getting one. It’s a prime time to start building credit and learning how to be financially responsible. If you’re clueless, your bank can help you decide which card is best for you. But beware; if you get a student card, know that they come with a higher interest rate than regular cards, so late payments can really rack up debt. Always remember: What you put on a credit card isn’t your money. It’s a loan you must pay back.
Visit Emily’s blog for more!