Reaping benefits of responsible credit card use
Published: Monday, September 2, 2013
Updated: Monday, September 2, 2013 18:09
My last summer as an undergraduate had started, and I wanted to make the most of it. My friends and I got together whenever possible between work and on the weekends to take day trips or enjoy the occasional happy hour. Every time we went to pay, however, something caught my attention—the waitress walking away with several cash bills and my credit card. This experience repeated several times until I finally acknowledged my realization: none of my closest friends had a credit card.
Statistics show that my experience is an accurate representation of the big picture and not an exception. An April study published by Sallie Mae and Ipsos stated “college student ownership of credit cards has declined from 42 percent (2010) to 35 percent (2012).”
Speaking on the assumption that my friends are a representation of the whole, what makes this trend even more unfortunate is the fact that young adults are not fully aware of the benefits involved with a responsible use of a credit card or the importance of building a good credit score.
Rewards are probably the most obvious and immediate perks of credit cards. These are often offered in the form of signup bonuses, cash back rewards or both. The most common signup bonus at the time of this writing is $100, credited to your account after spending $500 within three months of account opening.
On the other hand, cash back rewards are credited to your account periodically throughout the ownership of the card, traditionally at the end of every monthly billing cycle. Most credit card providers offer a percentage off every purchase, with select categories subject to larger discounts. For instance, a common perk is 1 percent off every purchase and 5 percent off gas and restaurant purchases. The majority of these cards do not come with any “catch” or annual fee, and the ones that do offer a larger set of rewards to justify that annual fee.
A long-term benefit from early credit card use is a head start on building credit. While this is certainly achievable without a credit card, that little piece of plastic offers a convenient and free way of letting you show the world that you are a reputable individual before you go out into the “real world.” Having limited or no credit rating can hurt the chances of getting a car loan, an apartment lease, a job at certain companies, or even a good premium on your car insurance.
Now that you have heard the pitch, however, you are probably asking, “What’s the catch?” The catch is as simple as it sounds—be responsible. Contrary to what we would all like to believe, a credit line is not free money. It is money that you borrow and eventually need to pay back, and the longer you wait, the more money you will owe. I am a strong supporter of paying off every credit card bill in full every month and not letting any interest pile up. As a result, my credit cards are not costing me a penny. In fact, they are earning me a decent chunk of change from a careful selection of cash back rewards and automatic bill payments. It may not be a fortune, but it is enough to fill up the tank with gas several times a year for nothing in return but a little self control on my end. Who could argue with that?