First Time Credit Cards For Young Adults - Not surprisingly, in its 2009 CARD Act, Congress banned the approval of credit card accounts for older teens and even 20-year-olds unless they met certain requirements. History and statistics show that most young people—and even many twice their age—are not ready for the responsibility of handling credit cards.
Many know that using a credit card can boost their credit rating, which they also know plays an important role in their financial lives. Unfortunately, many school boards and even parents still prefer to teach students how to balance a paper checkbook rather than how to build the accountability necessary to pay back credit card purchases on time and in full.
First Time Credit Cards For Young Adults
That said, how should you decide if you or your young adult children are willing to accept such commitments? Those who go by their guts or who believe that just having a full-time income allows them to use credit wisely too often and too quickly find themselves in so much revolving debt that their debts become insurmountable.
Vital Tips For First Time Credit Card Users
Instead, try using this checklist before you even think about applying for a credit or loyalty card:
Paying yourself first should ALWAYS be your top priority when paying bills and paying for living expenses. Successful savings can be a commitment rather than an amount, but before you consider applying for a credit or loyalty card (which are simply tools for taking on and using debt), make sure you have enough money in your savings account ( and) has. to cover your costs for housing, utilities, groceries, transportation and mobile phones. This is your living expenses.
If you were to lose your job and with it your income, or perhaps get injured or have a medical emergency that leaves you without income for several months, you need an emergency fund to stay independent. The last thing you want to do when you're looking for a job or feeling better is worrying about paying monthly bills.
While it should go without saying how important it is for a young adult to have a steady income before applying for a credit card, the reality is that credit card companies don't always focus on the applicant's income before deciding whether to approve it . approve. the account or not.
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If you've had only sporadic or seasonal income in the last 12 months as a young adult, think twice about applying for a credit card. If you make a purchase with a credit card and don't pay off the balance in full, the credit card company will charge you the minimum payment (usually about 3% of your outstanding balance) each month, whether or not you are employed. The card company will also charge you interest, which is the company's fee for borrowing money on the card.
If you don't have a steady income, you can start skipping payments. Not only will the card company charge you for missed payments, but it will also report your missed payment to the consumer reporting agencies ("credit bureaus"), and such negative activity will remain on your credit record for seven years, lowering your rating. and reduce your ability to get affordable loans in the future.
Recognizing the importance of income, the U.S. Congress included a requirement in its CARD Act of 2009 that card issuers must request information showing that a young adult under the age of 21 has "independent means to pay off any debt incurred, to recover to pay". continue to use the card. (Rule 301).
If you have a credit card and foresee that there will come a time when you will lose your income (change jobs, move or otherwise), it may even be wise to hide or literally block your card so that you are not tempted . . it for day-to-day living expenses. Live by the motto, "If I can't afford it with cash today, I can't afford to buy it with a credit card."
How To Get A Credit Card For The First Time
"Budget" is just another term for a spending plan. The sooner a young adult (or teen for that matter) learns the importance of planning his or her monthly expenses, the sooner they can escape the clutches of marketers, online influencers, and advertisers who manipulate consumers from whim to desire to succeed. . wail that is tossed about like waves on a sea.
A budget is your roadmap to success. You start by setting a financial goal. Money is not the focus of the goal, but a step in achieving the goal. Instead of writing "I need X dollars for a nice vacation" or even "I need X dollars by May 20, XX for a vacation to La Martinique", a better goal would be "To spend 7 vacations in La Martinique, you can relax days in September 20XX I need X dollars by saving each week (X÷Weeks Remaining).”
Then make a list of your expected expenses and purchases. If you're not sure how much you expect to spend or what to spend your money on, track every penny you spend over the next 30 days, record the date of the expense, who paid you, how much you paid, and categorize the expenses (e.g., donations, housing, utilities, transportation, groceries, dining out, entertainment, etc.).
If the number is positive, consider using that money to increase your savings, invest in your long-term retirement plan, pay off your debt(s), or do a combination of all three.
Best Debit Card For Teens Of 2023
If, on the other hand, the resulting number is negative, you need to make more money, cut costs, or do a combination of both.
Debit cards differ from credit cards in that the money spent during a purchase comes directly from your checking account rather than from a credit card company. Still, debit cards are similar enough to credit cards in some key aspects that help the cardholder know if he or she is ready for a credit card.
Using a credit card for a year or more without a purchase being declined means you're managing your cash flow, which is also central to managing your credit.
However, the most critical similarity has to do with the fact that using both cards requires minimal mental arithmetic or calculations. Many consumers who use a debit or credit card to make a purchase are unlikely to record the purchase in a checkbook or even remember the purchase amount by the time they reach the store doors.
How To Get A Credit Card With No Credit
Such poor credit management usually leads to mountains of credit and store card balances that quickly become unmanageable. Instead, the young adult should use a debit card for at least 12 months and record every purchase in some expense program, such as a paper checkbook (increasingly rare these days), a phone app, or at least through the categories of the purchase in a free banking app like Mint.com.
Determining whether you're ready for a credit card should be less about a birthday and more about your credit goals and your credit rating. The purpose of a credit score is to help potential borrowers understand how likely it is that you, as the borrower, will make payments as agreed.
While credit can also be used during the rental process as a factor in determining your car insurance premium and as a standard for getting approved by a property manager for the condo you want, you should avoid the idea of building credit for credit's sake . When it comes to these scenarios, having no credit is usually better than bad credit. If you're ready to build credit, read our step-by-step guide to building credit.
If you're 18 and want to build up your credit before buying a home or making another major purchase on credit, keep in mind that the Credit Card Act of 2009 changed some of the rules for qualifying for a credit card. Before 2009, all you had to do was be 18, find a card company willing to risk giving an 18-year-old a credit card, and fill out a credit card application.
How To Get A Credit Card
The Credit Card Act now states that you must be 21 to apply for credit as described above. If you are 18 to 20 years old, you must either have a cosigner who is 21 or older, or you must provide documentation to the credit card company proving your ability to pay the potential debt obligations incurred by the credit card This essentially means that you must prove that you have a regular income sufficient to pay for all the purchases you make with the card.
Instead of applying for a credit card yourself, ask a trusted family member to add you as an "authorized user" to their credit card account(s). You don't have to use (or even see) the card to inherit a relative's good credit.
Otherwise, save enough money to open a "secure credit card" (ideally one with no annual fee).
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