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Conquer fear of credit cards now, reap benefits later

Young adults need to put aside their fear

Young adults need to put aside their fear of credit cards in order to build a credit history for the future. Credit: Getty Images / Eva-Katalin

Young adults who are afraid of credit cards usually think only of the risks, rather than the role they play in establishing credit, consumer credit experts say. That can hold them back from building the credit history they’ll need later on if they want to finance a car or get a mortgage.

Here are five common questions and answers that can help credit newcomers understand credit cards and conquer their fears.

  • Why get a credit card at all? Using a credit card is the fastest and simplest way to build a credit history. And you don’t have to go into debt to do it. Use the card to buy only what you can afford — what you would otherwise pay for with cash — and then pay off the balance in full every month.

“You want to build a credit history because it will help you throughout your life,” says Beverly Harzog, author of “The Debt Escape Plan.”

Using a credit card responsibly demonstrates your ability to meet your financial obligations and builds your score. A good credit score can make the difference between loan approval and rejection, and it will get you better interest rates.

  • Aren’t there risks? Just as using credit cards responsibly can build your credit, using them irresponsibly can damage it. Piling up debt, maxing out the card, paying late or missing payments hurts your score.
  • If you have no credit, can you get a card? Newcomers to credit have a couple of options. One is a secured credit card. With these, you make a refundable security deposit — say, $200 or $500 — and this becomes your credit line.

In time, with responsible use, you’ll be able to move up to a regular, unsecured card that offers rewards or other benefits.

Another way to get started is to become an authorized user on someone else’s credit card, such as a parent’s. Not all issuers report authorized-user activity. “As long as the history is being reported, you’ll get credit for it,” Harzog says.

  • Don’t credit cards have a lot of fees? Most credit card fees are avoidable, including late fees and cash-advance fees. Many cards don’t charge an annual fee, so look for one of those if you’re anti-fee. Rewards cards often charge an annual fee, which can be worth paying if you get sufficient benefits back.

Avoid cards that charge monthly maintenance fees or that require an application or processing fee before your account is even open.

Credit card interest rates are called APRs, or annual percentage rates. The bad news: Your first card is likely to have a high APR. The good news: If you’re paying your balance in full every month, you won’t have to worry about your APR.

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