Should I Get A Credit Card?

Millennial Money has partnered with CardRatings and creditcards.com for our coverage of credit card products. Millennial Money, CardRatings and creditcards.com may receive a commission from card issuers. This site does not include all financial companies or financial offers.

Public opinion can be pretty split when it comes to credit cards. On the one hand, many people believe they encourage debt and can lead to a lot of problems. On the other hand, everyone seems to have one! Around 80% of Americans do, to be precise.

It can get confusing – are credit cards really as bad as some people make out? The answer is yes, and no. If you don’t know how to manage your finances properly, then a credit card can be disastrous, but if you know what you’re doing, then you shouldn’t have much to worry about.

Regardless, getting a credit card is a big move, so it’s essential to ensure you’re aware of all the information before you go ahead. So let’s get down to it and figure out, should I get a credit card?

Why Do I Need A Credit Card?

In theory, you don’t need a credit card. You can use your debit card for all purchases if you want to, and some people are strongly opposed to credit cards due to negative past experiences with debt or other reasons.

However, going without a credit card can definitely make your life harder. Without a credit card, you can’t start to build up your credit score, which means you’ll be unlikely to obtain approval for loans in the future. Even if you aren’t planning on taking out debt like a personal loan or auto loan, you may hit trouble if you ever want to take out a mortgage.

It’s therefore highly recommended to take out a credit card. There are also some other perks, as detailed below.

Building Credit

The biggest reason for getting a credit score is building a credit history. Factors like income level influence how lenders view you, but the only way to build your credit score is by taking out a loan. Using a credit card is the best and easiest way to take out a loan since you won’t face interest rates as long as you make all your payments on time. As long as you’re sensible, you can boost your credit score without ever racking up debt or facing extra charges.

Having a poor credit score might not mean you get shut out of taking out loans altogether, but it will almost certainly lead to you being shut off from the companies with the lowest interest rates, leading to you having to spend more. It’s far from ideal when you’re already shelling out for an expensive loan. The best lenders generally offer loans with an APR of less than 5% and no fees, whereas lenders aimed at high-risk borrowers may charge more than 30% and high fees.

Buying a home is the single most expensive investment most people make, and if you don’t build up your credit score before taking out a mortgage, you’ll make it even more expensive than it needs to be. Take out a credit card early, increase your score, and you could end up saving yourself thousands.

Even if you’re not planning on taking out any kind of loan, including a mortgage, you might sometimes need a good credit history for renting or utilities – two things you can hardly get through life without needing.

You never know what the future holds, so it’s wise to consider this before taking a strong stance against credit cards.

Fraud Protection

Another major reason for using a credit card that not everyone is aware of is the consumer protection they provide.

If your credit card is stolen, it’s far easier to get the funds returned back to you. Under federal law, you’re entitled to receive up to $50 back.

A credit card can also protect you against price protection – if you buy something and the price increases, you’re technically entitled to receive a refund equal to the price difference if you use a credit card. If you buy something that turns out to be fraudulent or the company selling it goes into administration, a credit card accepts joint responsibility with the retailer, so you can claim your money back from them. This can be a lengthy process, but you’ll eventually see the money returned.

However, it should be noted that PayPal also offers a similar thing in the form of Purchase Protection. If you pay for something using PayPal and the item never arrives or turns out to be different, they’ll reimburse you the money.

Rewards

Because credit card consumers are a lucrative market for lenders due to the high-interest rates, they often incentivize people to take on debt by offering them rewards for doing so. Getting a credit card often leads to perks like automatic cash back, airmiles, or shopping discounts. Sometimes credit card companies even offer a cash sign up bonus!

Although these benefits are great, you have to be sure you’re not spending just for the sake of getting a discount. By all means, take advantage of good offers like cash back, but don’t use it as an excuse to justify buying something you wouldn’t normally buy.

Emergency Money

Ideally, we’d all have a substantial emergency fund that could tide us over for unforeseeable situations. Yet the reality is that not everyone is in this situation, so having a credit card at least provides a way to access money in an emergency. We’re not talking about an emergency like your laptop breaking – we’re talking about an emergency like being stranded abroad after your holiday provider goes bust, and you have no money in your account.

Going into debt shouldn’t be taken lightly, but if a credit card can protect you from being stuck in a very sticky situation where you need to access money quickly, then that’s definitely a plus.

When Should I Get a Credit Card?

One of the biggest ironies of the credit card market is that most people want one to be able to build up their credit history, yet with no credit history, it’s challenging to get approved. To get approved for a credit card, one of the standard requirements is to have a good credit score. Average credit cards generally demand a credit score of between 630 and 690, while the best credit cards (with the most perks) ask for a score of above 690.

Whether you’re in your early twenties and looking for your first credit card or in your early thirties and looking to get your first card after resisting for a while, you’ll end up in the same position. However, there are a few ways to break away from this vicious cycle.

Having a co-signer means having someone else, who meets the requirements for the loan, agree to be jointly liable for meeting the payments. If you have a partner or close family member who trusts you to make the payments and agrees to be a co-signer, this is an ideal way to get your first credit card.

For understandable reasons, you might have a problem getting your friends, family, or partner to agree to this – no matter how much you think you trust someone, it’s a huge commitment and one that has ended in tears for many people.

Alternatively, you could be added as an active user to somebody else’s credit card, a method most commonly used by parents and children. The active user isn’t liable to make the payments at all, but they can use the credit card and piggyback off the parent’s use of the credit card and build up a credit score passively.

What is the best age to get a credit card?

The sooner you get a credit card, the earlier you can start to build up your credit score, so the earlier, the better. The longer someone’s credit history, the better their credit score will be as long as they manage that debt well, so getting a credit card at a young age can be a great strategy.

In the US, you can get a credit card at age 18, but realistically it’s hard to get one under the age of 21 due to new laws. These require anyone under the age of 21 to have a steady monthly income to be able to get a credit card. If you’re under the age of 21, you can still get a credit card by getting a co-signer or applying for a special type of card for young people, like a student credit card or secured credit card.

Although getting a credit card is undoubtedly a good idea for the sake of building up a credit history, it’s a bad idea for anyone who hasn’t developed the right attitude toward debt. Some young people with a poor understanding of financial history may be tempted to max out their credit limit despite being unable to pay the balance at the end of the month.

Which Credit Card Should I Get?

When it comes to choosing a credit card, be careful about not falling into common traps. Some card providers offer enticing offers, like 0% interest for a set period, but this isn’t as good an offer as it first appears.

Companies are hoping their customers will get used to paying 0% interest and be unable to pay off the overdue payments they’ve racked up before the period ends, resulting in high payments and profit for them.

Instead, assume that you’ll be making the full payments each month and won’t need 0% interest deals. Small fees and perks like cash back are much better factors to consider.

Best For Students: Discover it Student chrome

discover it student cash back credit card image

  • Annual Fee: $0

Who said that starter credit cards don’t have good perks?

Discover’s student card not only has zero annual fees, but a rewards rate of 1% to 2%.

As a bonus, all the cash back you earn in the first year will be matched by Discover, with no maximum limit.

There are also some perks that could encourage you to get into bad habits – for the first 6 months, you’ll have 0% APR on purchases, and your first late payment will even be forgiven.

But avoid falling into this trap and don’t use these features on purpose.

 

Best Starter Credit Card: Capital One QuicksilverOne

Capital One Quicksilverone Credit Card
  • Annual Fee: $39

We weren’t lying when we said that it’s not just students who can snap good deals for starter credit cards.

This card from Capital One may charge a minuscule annual fee of $39, but you can earn that back over the course of the year thanks to the 1.5% cash back offer.

If you use the card wisely to build up your credit, you might be able to upgrade to Capital One’s QuickSilver Cash Rewards card, with no annual fee and additional benefits.

 

Best Secured Card: Discover it Secured

discover it secured credit card image

  • Annual Fee: $0

Discover comes out top again with their secured credit card. If you don’t fancy paying $39 a year in an annual fee, but you’re happy to pay a small deposit, this might be a better fit for you than Capital One’s unsecured card.

Other than the obvious differences in terms of collateral and fees, the two cards are reasonably similar.

The Discover card has a rewards rate of 1% to 2% (depending on where you purchase), so you can expect a similar amount of cash back – although Discover will match everything you earn for the first year, so that could top the balance.

How do I apply for a credit card?

Applying for a credit card is generally a very simple process. Before you start an official application, providers will often give you the chance to find out if you’ll be approved provisionally without it affecting your credit score (being rejected can have a negative impact). If they don’t, there are some free services available online that will calculate your credit score and tell you which cards you’re likely to be approved for, like Experian and CreditKarma.

Once you’re feeling relatively confident in your chances of approval, you can start the official application. This will consist of personal details and information related to your financial status, like your employment status, income, and financial history. You may have to outline your monthly costs.

This shouldn’t take you very long, and you’ll often find out if you’ve been approved very quickly.

If you end up being rejected, the good news is you can learn from your mistakes. Card issuers will explain their decision with an adverse action notice outlining their decision, and if not, you can always give the provider a ring to see if they can enlighten you further. See this as your personal feedback and try to take it on board for when you apply again!

Dangers Of Credit Cards

Although credit cards are a great tool for anyone who can manage their finances effectively, they can be dangerous if you’re at risk of not making your payments.

Some people argue that all the carrots dangled at consumers for using credit cards are shameless incentives that encourage debt.

High-Interest Rates

As mentioned, if you don’t repay the full balance owed at the end of the month, you’ll be hit by extortionate interest rates. It’s common for credit cards to charge between 15% and 30% interest. This puts people into a spiral of debt they struggle to escape from – if you couldn’t make the payments with no interest, you’ll find it almost impossible to make them with the extra interest charges added too.

Some people who would be capable of meeting their monthly credit card payments end up missing a payment by accident. If you’re busy with lots of commitments or have multiple payments to make, it’s easy to get behind and miss a payment. Unfortunately, a simple mistake like this can be devastating when it comes to credit cards.

The high-interest rates are also an issue if you go above your credit card limit. This can be an issue even for responsible users. If you don’t have much of a credit history, you may only get approved for a relatively low credit limit. If you then get into the habit of using your credit card for all purchases in the hope of boosting your credit score, you could easily end up going over your limit.

Credit Utilization

Responsible users can also get caught out by using too high a percentage of your credit limit. Known as a credit utilization ratio, spending too much of what’s available gives a signal that you need to take out debt and are a higher-risk borrower. It’s generally recommended to keep your credit utilization ratio at 40% or below – ideally as low as 10%.

This can seem counterintuitive when there are perks like cash back and air miles available for keeping your spending high, but you can get around it by having multiple credit cards or waiting until your credit limit is increased until you up your spending.

Alternative Types of Credit Cards

There are also a few credit cards specially designed for people with a limited credit history getting a card for the first time, like student credit cards. However, bear in mind that being a student doesn’t automatically mean you’ll guarantee for a student credit card – you also need to have some income.

If you’re not a student, don’t panic – there are credit cards available for everyone that are aimed towards people with a limited credit history too. These are often called starter cards. They sometimes come with fees and higher APR, but as long as you’re careful, that shouldn’t be too much of an issue, and you can switch to a no-fees account when possible.

Another type of credit card that’s easier to get approved for is a secured card. A secured credit card works similarly to a secured loan; if you’re unable to make payments, the credit card lender can legally take collateral to pay the balance. Instead of an asset like a property or car, this is normally just a cash deposit – generally between $200 and $500, but the bigger a deposit you have, the more credit you’ll be able to access.

This can be frustrating as you won’t have easy access to the deposit you made for collateral and have to pay the credit card balance with separate money, but it can be a great way to get your first credit card. Normally, you can convert a secured credit card to a regular credit card within 12 to 18 months.

So, Should I Get A Credit Card?

When it comes to credit cards, their merit depends on the user. Used wisely, credit cards are a great tool to gain cash back, points, and protect yourself from theft. Yet if you can’t trust yourself to have a credit card without maxing out your credit, ending up in debt, and suffer the extortionate interest rates, you should probably stay away. And, as the ultimate blow, your credit score will be ruined.

If you have the money management skills to use a credit card in the same way as you would a debit card, getting one is a no brainer. You’ll be able to build up your credit score to make your life easier in the future while taking advantage of nice perks like free money (in the form of cash back) or free air travel. As long as you’re sensible and committed to making your monthly payment, there’s no need to be scared off by the high-interest rates.

Additional Disclosures: Millennial Money has partnered with CardRatings and creditcards.com for our coverage of credit card products. Millennial Money, CardRatings and creditcards.com may receive a commission from card issuers. This site does not include all financial companies or financial offers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

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