Shortly after turning 18 or entering college, many young people receive credit card offers. This can be very exciting, but it’s also a time where caution is needed. Maintaining good credit is part of being financially mature. Credit cards are serious business and shouldn’t be taken lightly, especially since it is one of the top reasons why so many Americans are in debt up to their eyeballs. Managing credit cards is a necessary skill yet rarely is it taught in school or in the home and the last thing any student needs is to graduate with both student loan and credit card debt.
Before even applying for a credit card, it’s best to first learn how they work. Credit cards can be very tricky and having too many open credit cards will contribute to the amount of revolving credit that is tracked by the major credit agencies. Once that limit is reached it can begin to reflect poorly on credit reports. Essentially, it makes it look as though there is too much debt, or potential debt. Thus making it seem a person is a bad bet when it comes to lending money.
Fortunately for today’s students, the Credit Card Responsibility and Disclosure Act signed by President Obama has new requirements for card issuers that make it more likely that first time card holders are prepared for the responsibility of owning a credit card. There are also businesses that assist people in comparing credit cards. Comparasave.com compares credit cards, car insurance and other costly endeavors. With all the tools available, students are better able to prepare and manage their financial needs.
Starting with a Prepaid Debit Card
Many people will get a prepaid debit card as a way to build credit and learn how to better manage money. These cards don’t require the holder to have good credit since they must fund the card with cash. This kind of card makes it easy to see how the credit system works while only being allowed to borrow up to the amount that has been prepaid. However, credit cards work a little differently since there are interest rate fees and possibly late fees if the minimum balance is not paid back on time. Debt can pile on in a hurry if a credit card is paid late or if only the minimum balance is paid each month.
Unsecured Credit Cards
Unsecured credit cards are issued to people who have good credit. With an unsecured card, you will have interest rates to worry about, so shopping for a lender that has low fixed rates is important. High interest rates can quickly increase the card debt as will any additional fees and fines. Money management skills will be needed to keep from ending up heavily in debt, but for most people having a credit card is an essential part of life. It’s difficult to rent anything from a hotel room to car without a credit card. Even many doctor offices are requiring credit cards in case insurance declines a claim.
When all is said and done having a credit card can be a tremendous help in getting through modern society. Creating a budget and showing restraint will keep the credit card a powerful tool rather than a terrible master.