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Introduction to Credit

Just about every teenager can't wait until he or she gets their first credit card.  It's a chance to become more independent.  It gives them more convenient ways to pay for things.  And they can finally start ordering things online without bugging their parents to use their credit cards.

The Dangers of CreditCredit is dangerous.  We hear about it all the time but we usually ignore it.  So sometimes it takes numbers to get people to pay attention.  $2,750.  That's how much the average college student owes on their credit card right now.  500,000.  That's the number of people under the age of 35 who have filed for bankruptcy in the last five years.Unfortunately, too many people who have a credit card get into the mindset of "buy now, pay later."  It usually starts out with "I get paid next week so I'll go out and buy $100 of clothes now.  I'll just pay it off when I get my paycheck."  But then some unforeseen expenses come up and next thing you know, you're carrying a balance that's growing and growing.When a bank or other financial institution issues you a credit card, it's not because they like you.  It's because they can charge you interest.  And being young, they can charge you a lot of interest.  So when you buy something and it takes you a while to pay it off, you can end up paying a lot more than you thought.  That $300 CD player for your car might sound like a great investment but a couple years from now when you've paid $800-900 for it because of interest, you'll really be hating yourself.The truth is, nobody ever thinks they'll have credit problems.  But so many Americans do.  And it's especially a problem for college students who find themselves out on their own for the first time in their life with no major income but lots of major expenses (books can cost $1000 per school year!).  That's why it's important to really limit yourself to your credit uses.Your Credit ReportYou can read more about your credit report here but we'll touch on it briefly.  Basically, your credit report is like a permanent report of how you use your credit.  Every time you apply for a credit card, finance a car, rent an apartment, buy a cell phone, or take out a mortgage, your credit report will be examined to see if your credit is good enough.As you can tell, it's pretty important to have good credit because it affects whether or not you'll be able to buy a car or house in the future.  So I recommend periodically checking out your credit report using a credit reporting service.  You can find these all over the internet.An Alternative to Having a Credit CardYou can get a credit card when you're as young as 16 if you have a parent to sign on your account with you.  But I do not recommend getting one until you're 18.  If you've got a bank account, I recommend starting out with a debit card.  You still get many of the conveniences of a credit card without any risk.That's just a short introduction to credit.  Check out our credit section periodically for new articles, as we'll be adding more every couple weeks.

 

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