When I bought my first real estate property in 2010, I had excellent credit. My score was over 760, but my mortgage broker told me they couldn’t give me the best rate because my credit history was too short. At the time, I was 23, and the only credit card I owned was one that my mom co-signed for me so I could buy the essentials during college. I was only allowed to use the card for gas, groceries and bars that sounded like grocery stores 😉 Since then, I’ve amassed an impressive collection of credit cards and my credit history is getting longer.
I think it’s a vital step to financial independence for college students to get their own credit card. If I’m an 18 year old kid and I have my parent co-sign for a credit card, they are on the hook for the balance if I can’t pay, not me. In fact, a co-signed card will do nothing to help build the applicant’s credit. Instead, students should opt for a student credit card to help build their credit. In my real estate situation, if I would have established a line of credit when I turned 18 or 19, I would have had a credit history of 5 years when I first applied for a loan and probably gotten the best rate. Not only will establishing credit at an early age save you money but it also teaches students life long lessons of financial responsibility.
Don’t Baby Adults
In the eyes of the law, when children turn 18 they become adults. Often, they go off to college where they can vote, smoke and drink(illegally, but yes under-age drinking is prevalent in college). Why shouldn’t they be allowed to open a credit card and start spending? There are plenty of adults who rack up loads of credit card debt and treat their cards like a piggy bank. I still can’t fathom why anyone would ever spend more money on their card than they have in their bank account, but obviously some people don’t see the connection.
There are tons of stupid people in this world, and I don’t feel the need to baby them and tell them what they can and can’t do. Student cards generally come with a $500 or $1,000 limit. The second you get a full-time job, credit card companies are chomping at the bit to offer you 10-20k lines of credit. I don’t think much harm can come out of a credit card with a $500 limit, but you can do some real irreparable damage with a $20,000 limit.
Don’t Trust Credit Card Companies
Although I think adults should be able to make their own financial decisions, credit card companies are not helping the situation. These companies often send representatives to college campuses to search for unsuspecting victims. There’s no mention of what the interest rate will be if you don’t pay, what a credit inquiry is, etc. I think that first time credit card holders should have to take a simple two hour course that would explain everything about your credit and how credit works. If you have to pass a test to drive a car, why not to get a credit card?
The government has made some minor changes to help consumers, but there is still nothing for first time users. Although student loan debt may be a bigger problem at this point, I hope the government imposes some restrictions in the future on first time credit card use. Until then, parents need to do their best to educate themselves and their children.
Credit cards can be a great tool if used wisely. I have been using credit cards and reaping the rewards for over 5 years now and I have never paid one cent in interest. Because of my solid credit history, I’m able to constantly take advantage of awesome credit card sign-up bonuses and still maintain my high credit score. Students should not be shielded from credit because it will be important to them for the rest of their lives. I don’t ever expect the credit card companies to educate their consumers because it’s not in their best interest. Until government agencies intervene, it’s up to credit card holders and their families to educate them about the proper uses of credit.
It is more challenging than most people realize for those who have just completed grad school, such as an online mat program, to avoid significant debt. Do you think students should be allowed to use a credit card? When did you get your first credit card?
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-Harry @ PF Pro