The Good, The Bad, and The Ugly: Credit Cards

When someone says “credit card” what are the first things that pop into your head? Often it is thoughts such as “debt”, “fraud”, “overspending”, or “irresponsibility” that are the first to come to mind. All of these have a very strong negative connotation, or negative emotional association, for most people. Credit cards are often associated with creating problems in people’s lives. While this is sometimes sadly the case, there are however, many positive effects of credit cards – especially for young people. The following post focuses on these positive attributes of credit cards and how you can capitalize on them.

One of my favorite aspects of credit cards is the simplicity. There are generally two different types of people who use credits cards: those who carry a balance and those who pay off their balance every month. I use my cards primarily in the second method. Sure, it is nice to have extra credit on hand in case something happens and I need to make a large purchase, but I mainly use my credit cards as a way to pay for monthly expenses in one easy method. There are a couple of reasons this is so convenient. First of all, it fits into my method of budgeting. I like to keep track of my expenses on a monthly basis. At the end of every month I will review the charges on my credit cards and make sure that they all make sense. I will then pay for the entire bill at once, which is a cleaner way of keeping track of what I am spending. Also, it allows me to only have to remember to check for fraudulent charges once. Since I am paying the bill in one single payment I only really need to make sure all the charges are from my purchases once before a payment. Having to monthly pay a bill keeps me in the habit of checking these things. For me, when I used a debit card before for all my monthly expenses there was no method or need to routinely check the charges on my account. The simplicity of putting all my bills in one place and paying them off at once is one of the greatest benefits of credit cards to me.

Another often unknown benefit of getting a credit card as a young person is building your credit. While most people know that there are many actions that can hurt your credit, such as not paying your bills and defaulting on loans, there are also many actions that you can do that help build your credit. Using a credit card responsibly is one of those. Using a credit card responsibly means using only a portion of your available credit on a regular basis and consistently paying your bills. When applying for a loan or mortgage potential creditors do not want to only see that you did not do “bad” things with your credit, but they also want to see that you can use credit responsibly. It is also good to get a credit card as a young person because it is often easier to get a card as student. Many companies offer special cards for students that have low credit limits, no fees, and sometimes even have tools for young people to learn how to responsibly use their credit. After the “Great Recession” the US government passed the Credit Card Accountability Responsibility and Disclosure Act. Among other things, this made it much more difficult for people to get credit cards. In additional to this, many companies were scarred off from individuals with limited credit histories or bad credit. My brother for example, graduated in 2007 from a reputable university down the road from UNC-CH with a degree in mechanical engineering. Even with a good paying job working in his field he was denied several credit cards because he never built up his credit as a student. Getting a credit card with a small credit limit in college to pay for things like gas or groceries is a great way to build your credit slowly.

One final added bonus of credit cards is the points! Many credit card companies offer rewards programs with their cards. These give you points or cash back that you can use for gift cards, cash, credit towards your account, or even products. If you use a credit card responsibly and carry no or a minimal balance you can really add up the rewards and pay little or no fees or interest. Some apartments even let you use a credit card to pay your rent which really ads up your rewards quickly. While not a major reason to get a card, it is a small bonus for using a credit card responsibly.

There are a multitude of reasons that getting a credit card as a young person makes a lot of financial sense. The key is to take the time to find a card that is right for you and to do your research on how to responsibly use a credit card. Credit is not a right; it is a privilege that you must prove over time that you are trustworthy to use.

Stephen Padgett

Stephen Padgett

Stephen Padgett is a current junior at the University of North Carolina at Chapel Hill. He is working toward a BA in Economics and Political Science and plans on graduating early in December of 2012. Although he does not know what he wants to do for his career, he is looking forward to an opportunity with Credit Suisse’s Operations Team this summer in Raleigh.

Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.

In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
Stephen Padgett

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