In 2010, a round of “consumer protection” laws for credit cards went into affect to protect “innocent” consumers from “predatory” lenders. Some of the changes are spot on and make good common sense. However, some of the new rules that credit cards companies have to abide by seem more damaging to responsible young adults who are interested in building credit early in life.
Currently, credit card issuers are not allowed to issue cards to anyone under the age of 21 unless they can show proof of income (which only has to satisfy the minimum payment) or obtain a co-signer to guarantee the repayment of debt. The only other way a young adult can obtain a credit card is to piggy-back off a parental account and become an authorized user.
Before the suppression of market forces, I was able to obtain my first credit card at the age of 17 while I was still in high school. I was holding down a part-time job (which was somewhat detrimental to my GPA) and got a whopping $300 credit limit with my father as the co-signer. I don’t remember many details of the card, but I remember that it had a pretty high variable interest rate and no rewards program. Most importantly though, there was no application fee, no annual fees, and was unsecured (no deposit necessary).
Having virtually no expenses, I started using the card to pay for small purchases like gas and food. I always paid my balance in full every month and before I knew it, I got a letter in the mail stating that my credit limit had been increased. I realized early on that I was building my credit and flexing my cash flow for free. Since the cost of using credit is already priced into purchases, there was no downside to using the credit card to pay for items as long as I was paying the balance every month.
Credit Cards Reward For Cashless Transactions
Using the credit card became increasingly important as I started college and realized that the GI Bill didn’t pay tuition and related expenses upfront. This meant I had to pay for my tuition in full to avoid charges for spreading out payments to the school. By this time, I was more financially savvy and had obtained a higher limit rewards credit card. So instead of writing a check to the school, I used the credit card to pay. Cash back just to pay for tuition! Not to mention the ease of completing the transaction by not having to print and fill out forms, record the transaction, and wasting an envelope and stamp.
Now, everything from the phone bill to insurance are paid using credit cards. Even small transactions at the supermarket are paid using a credit card. I always look forward to my year end statements when it summarizes my cash back summary with zero interest and no fees paid.
In fact, I just redeemed my rewards that were sitting in two different accounts for a few years. I am getting $503.76 back in cash! As an alternative rewards choice, my wife likes to look out for the deals the credit card companies offer on discounts for gift card redemptions. She only gets the discounted gift cards on places she is planning on shopping at, so it’s like getting twice the savings. A really smart move!
More on credit cards later, but just make sure you are using them responsibly and as an extension of the cash you already have. The worst way to use credit cards is to actually borrow money by making monthly payments or in advance of money you think you are going to earn.
So, I’d like to know. How old were you when you got your first credit card? Do you pay the balance in full every month? How do you use them to your advantage? Have you taken time to review your rewards balance lately or redeem it?
Talk to me, Goose.