There are many in the media who suggest that getting a credit card is a bad idea and leads to irresponsible spending and unavoidable debt. This is simply not true, in fact, it is very important that, if you do not already have a credit card, you should open one right away.
Why? Your credit score will suffer if you don’t. Payment history makes up 35% of your credit score according to myfico.com. If you have no history you will be missing 35% of your score. While this may not matter to you right now, it will the next time you apply for a car loan, or to rent or buy a home, even for your car insurance, or possibly a rental car. There are many times your credit score is checked and it can affect how much you pay for the goods and services you want and need. By waiting until you need your credit score to start building it, you will jeopardize your chances of approval. The longer history you have with your accounts, the better. A one year history of on-time payments is not nearly as impressive as a three or five year history and the difference will be reflected in your score.
So why do so many advisors encourage you not to open a credit card? There are certainly problems that can arise, but proper management of you new credit will keep you on track to build your credit score and earn lower interest rates in the future. Just follow a few simple rules to make sure you don’t get into trouble. First, only use your credit card for purchases you would normally make, just because you can spend more doesn’t mean you should. If you don’t have enough money to pay for something, don’t buy it. Second, be sure to pay off your credit card each month in full, making only the minimum payment will result in large interest charges and can bury you in debt. As long as you pay the full balance each month, you will not incur these charges. And finally, make sure you stay within your credit limit. Your limit may be very low when you first get a credit card and it could be easy to charge more than you are approved for, but if you do this you will have penalty fees to pay. Keep track of what you purchase and what your balance is at all times. If you are concerned about overcharging, just use your card for a few transactions each month to make sure you don’t go over.
Now, go out and get your card, do some research and find what one is best for you. Try to avoid fees, and see if you can get a card that pays you reward points for using it, one more reason to have a card. There are many cards available to build your credit; these will most likely be the easiest to get approved for. Then you will be on your way to building your credit score.