Should I open a credit card when I turn 18 just to start a credit score?

Question

I spend about $20-30 a week on my debit card, with periodic $200-300 purchases every few months. I've thought about getting a credit card the moment I turn 18 and using it to buy everything, then immediately paying it off. Assuming I only use it to buy things I can afford (which I trust myself to do), essentially treating it as a debit card, is this a good idea? Or should I wait until I'm a bit older?

Assume that I will only spend money I have in my bank account at the time I spend it and that I will keep track of how much I spent and never spend more than I have.

Joe Taxpayer recommended I post an update: I ended up getting a card, and from my perspective the only thing that's changed is that it takes things ~24 hours to show up on my statement and I don't have to enter a PIN when I checkout. Should I add this to the question? I know on other SE sites people generally don't like updates in the questions

Answer 1

Yes, it is a very good idea to start your credit history early. It sounds like you have a good understanding of the appropriate use of credit, as a substitute for cash rather than a supplement to income. As long as you keep your expenses under control and pay off your card each month, I see no problems with the idea.

Try to find a card with no annual fees, a low interest rate if possible (which will be difficult at your age), and with some form of rewards such as cash back. Look for a reputable issuing bank, and keep the account open even after you get a new card down the road. Your credit score is positively correlated with having an account open for a long time, having a good credit usage to credit limit ratio, and having accounts in good standing and paid on time.

Answer 2

The length of time you have established credit does improve your credit score in the long run.

As long as you can avoid paying interest, you might see if you can get a card with cash back rewards. I have one from Citi that sends me a $50 check every so often when I have enough rewards built up.

Answer 3

Yes, as long as you are responsible with the payments and treat it as a cash substitute, and not a loan. I waited until I was 21 to apply for my first credit card, which gave me a later start to my credit history.

That led to an embarrassing credit rejection when I went to buy some furniture after I graduated college. You'd think $700 split into three interest-free payments wouldn't be too big of a risk, but I was rejected since my credit history was only 4 months long, even though I had zero late payments.

So I ended up paying cash for the furniture instead, but it was still a horrible feeling when the sales rep came back to me and quietly told me my credit application had been denied.

Answer 4

Not only should you do this, you should tell your friends to do it too. Especially if a parent comes in to the bank with the child, banks fall over themselves to provide a card to someone whose only income is allowance. Really. Later, if you're 21 and your car broke and you don't get paid for another 11 days, NOBODY will lend you the money (or those money mart places that charge 300% a year will) to fix it. Never mind score (and yes for sure having a good score will be a result, and a good one) just having the card for emergencies makes all the difference to your early twenties.

My kids have several friends who now can't get credit cards (some are students, some are underemployed) and end up missing paid days of work due to car troubles they can't pay to fix, or using those payday lenders, or other things that keep you poor. Get one while you can. Using it sensibly means you will have a great credit score in a decade or so, but just plain having it is worth more than you can know if you're not 18 yet.

Answer 5

I also feel it's important to NOT get a credit card. I'm in my mid 30's and have had credit cards since I was 20, as has everyone I know. Every single one of those people, with the exception of my dad, is currently carrying some amount of credit card debt - almost always in the thousands of dollars.

Here is the essential problem with credit cards. Everyone sets out with good intentions, to use the credit card like a debit card, and pay charges off before interest accrues. However, almost no-one has the discipline to remember to do this, and a balance quickly builds up on the card. Also, it's extremely easy to prioritize other bill payments before credit card payments, resulting in a balance building up on the card.

It's almost magical how quickly a balance will build up on a credit card. Ultimately, they are simply too convenient, too tempting for most human beings.

The world, and especially the North American world, is in a massive debt crisis. It is very easy to borrow money these days, and our culture is at the point where "buy now pay later" is an accepted practice.

Now that I have young children, I will be teaching them the golden rule of "don't buy something until you have cash to pay for it in full!" It sounds like an over simplification but this one rule will save you an incredible amount of financial grief over time.

Answer 6

No, don't open a credit card. Get used to paying cash for everything from the beginning. The best situation you can be in is not to have any credit. When it comes time to buy a house, put down %30 percent and your 0 credit score won't matter.

This will keep you within your means, and, with governments gathering more and more data, help preserve your anonimity.

Answer 7

I will disagree with the other answers. The idea that there is some to establish a "credit history" is largely a myth propagated by loaners who see it as positive propaganda to increase the numbers of their prospective customers.

You will find some people who claim they were rejected for a card because they had no "credit history," but in every case what these people are not telling you is they also had no income (were students, house wives, or others with no steady income). Anyone who has income can get a credit card or other line of credit regardless of their "credit history." Even people who have gone bankrupt can get credit cards if they have proven income.

If your answer to this is that "you have no income, but still want a credit card", I would advise you to re-read that sentence several times and think carefully about it.

I have never had a credit card and never missed having one, except when trying to rent cars which was somewhat complex and annoying to do in the 2005-2010 time period without a credit card.

Credit cards have a number of disadvantages:

• They provide a temptation to waste money on luxury goods you do not need
• The interest rates on credit cards are relatively high
• You greatly increase your chances for having your identity stolen
• All your purchases using the card are tracked and the information is provided to various organizations and people around the world, many of whom you would not want having your purchase information if you knew who they were.

I definitely agree with those who will tell you credit cards are convenient, they are, but for someone who wants to be financially prudent and build wealth they are unnecessary and unwise.

If you don't believe me, read "The Total Money Makeover" by David Ramsey, one of the most famous and best-selling books ever written on personal finance. He actually will give you much better and detailed reasons to avoid CCs than me. After all, who am I, just some dumb rich schmuck with lots of money and no debt and a happy life.

Comment on Culture

I think it is pretty funny we have a lot of spendthrift Americans in this thread basically telling the OP to get lots of credit cards as soon as possible. If you asked the same question in Japan you would get completely different answers and votes. In Japan its hard to even use credit cards. The people there are much more responsible financially than Americans; the average Japanese person has much higher wealth than a person with the same income in the United States. One of the reasons for this, among many, is that the average Japanese person does not use credit cards. A Japanese person, if you translated this question for them, would think the whole thing a typical example of how foolish Americans are.

Answer 8

Assuming I only use it to buy things I can afford (which I trust myself to do), essentially treating it as a debit card, is this a good idea?

This is definitely a good idea.

From my own experience, before I got my first credit card through my local bank (age 18), I tired to apply for a card that has cash back rewards and was rejected because I didn't have any credit history. After I had the card from my bank for 6 months, I applied for this Capital One card that I've had ever since.

Answer 9

I want to recommend an exercise:

Find all the people nearby who you can talk to in less than 24 hours about credit cards: Your family, whoever lives with you, and friends.

Now, ask each of them "what's the worst situation you've gotten yourself into with a credit card?"

Personally, the ratio of people who I asked who had credit cards to the ratio of people with horror stories about how credit cards screwed up their credit was nearly 1:1. Pretty much, only one of them had managed to avoid the trap that credit cards created (that sole exception had worked for the government at a high paying job and was now retired with adult children and a lucrative pension). Because it's trivially easy over-extend yourself, as a result of how credit cards work (if you had the cash at any second, you would have no need for the credit).

But do your own straw poll, and then see what the experience of people around you has been. And if there's a lot more bad than good out there, then ask yourself "am I somehow more fiscally responsible than all of these people?".

Answer 10

This is a good idea, but it will barely affect your credit score at all.

Credit cards, while a good tool to use for giving a minor boost to your credit score and for purchasing things while also building up rewards with those purchases, aren't very good for building credit.

This is because when banks calculate your credit report, they look at your long-term credit history, and weigh larger, longer-term debt much higher than short-term debt that you pay off right away. While having your credit card is better than nothing, it's a relatively small drop in the pond when it comes to credit.

I would still recommend getting a credit card though - it will, if you haven't already started paying off a debt like a student or car loan, give you a credit identity and rewards depending on the credit card you choose. But if you do, do not ever let yourself fall into delinquency. Failing to pay off loans will damage your credit score. So if you do plan to get a credit card, it is much better to do as you've said and pay it all off as soon as possible.

Edit:

In addition to the above, using a credit card has the added benefit of having greater security over Debit cards, and ensures that your own money won't be stolen (though you will still have to report a fraudulent charge).

Answer 11

Definitely not. Credit cards only exist to suck you into the soulless corporate system. What you want to remember here is that you can't trust banks, so you'll want to convert all your savings into some durable asset, say, bitcoins for example, and then hoard them like Smaug until after the Fall.