When I was in sixth grade, my teacher taught us about credit cards. He had us research the terms of various cards (interest rates, minimum payments, etc.) and calculate how long it would take to pay off a hypothetical $300 purchase – a number which, in elementary school, is huge but not unfathomable. We made graphs and learned about compound interest. I’m not sure about everyone else in the class, but the numbers stuck with me and I’ve been terrified of credit card debt ever since.
So when I got old enough that I was making purchases larger than $2 for candy at the corner store on a regular basis, I went with a debit card. All the convenience of plastic and none of the the horrifying interest rates. I never bought anything I didn’t have cash in the bank for, and thus I am now 24 years old and have never had a credit card.
This has the great benefit of never having had consumer debt at 20% (or higher!) interest rates. However, it also means I have almost no credit history (when I bought my car after college, my dad had to co-sign just because I didn’t have any history), and since I’ll probably eventually want to buy a house, I needed to start building one.
I did research using sites like Nerd Wallet, Credit Karma and The Points Guy (because I am nothing if not obsessive about my research) to find a card that would give me decent rewards even as someone who doesn’t spend much.
The application process took longer than it normally would, since my credit history is pretty bare bones. After applying online, I received a letter in the mail asking for a pay stub and copies of a couple of recent bills, and then had to wait a few weeks longer to hear back.
I ended up being approved, with a fairly low limit – but still higher than my monthly spending excluding rent, so no problem there. I’ve set the balance to be autopaid, so that I’ll be earning the rewards and building my history without accruing debt.
Side note: many people believe that if they pay their balance in full, they aren’t a profitable customer for the credit card companies. False. The companies make a small percentage on each purchase you make with their card, called a transaction fee (which is why some businesses have a discounted price if you pay in cash).
For me, signing up for a credit card was a pretty big financial step. I’ve never had a need for one, since I’ve always had enough in the bank to cover any purchases other than my car, which I financed through a credit union at a fairly reasonable rate, and never saw a reason to leave behind the security of my debit card.
But I saw two large benefits to finally taking the leap:
- Rewards (This isn’t actually much of a benefit since the 2% rewards will be less than $20/month for me, but I’ll take it)
- Credit history, so that someday I can be approved for more exciting things like a mortgage.
Moral of the story: Credit cards can be a solid financial tool, if you use them responsibly. And, if you’re a sixth grade teacher, your lessons can keep resonating for a solid 12 years.