What credit card should I get as my first?

[GeckoGeek]

Re: What credit card should I get as my first?

a credit card will be those with high interest rates

People make a big deal over a card's interest rate. If you pay the card off every month, it doesn't matter. I'm more interested in the policies like how much time I have to get my payment in. Or what happens if it is late. Some cards if you're late you pay a penalty for TWO months, not just the one you are late.

[craigwatanabe]

Re: What credit card should I get as my first?

People make a big deal over a card's interest rate. If you pay the card off every month, it doesn't matter. I'm more interested in the policies like how much time I have to get my payment in. Or what happens if it is late. Some cards if you're late you pay a penalty for TWO months, not just the one you are late.

That's the point...most people don't pay the whole thing off in a month. Most pay the minimum and that's the problem with high-interest credit cards.

[brianca]

Re: What credit card should I get as my first?

You could say the same thing about the late fee. It doesn't matter if you don't pay it late. Of course there will always be a reason to pay it late or carry a balance, so they both matter if you are going to get one, IMO.

[Miulang]

Re: What credit card should I get as my first?

Used to be also that you'd have a "float" of about a month to pay your credit balance in full with no interest. Now, some cards have changed the time to 20 days (check the information from your bank card company).

Miulang

[mapen]

Re: What credit card should I get as my first?

The best way for a young person who has no credit to establish credit is to apply as a student. You can check the box for "student" or write student on the application where your would put your employer's name. Most credit cards will not ask you to prove that you are a student. You'll start out with a small credit limit like $800 or $1200 and work your way up from there.

Regarding debit card vs credit card, credit cards are better. With debit cards, there is the danger of someone stealing your debit card and emptying out your bank account, causing checks to bounce and bank fees to mount. In such a case, it may be a few weeks before you get your money back, *if* the bank gives you your money back at all. On the other hand, with a credit card, federal laws limit your liability to $50 max. Credit cards have many other benefits over debit cards.

While it's true that debit cards make it difficult to get into debt, I don't think it's good advice to universally advise everyone to stay away from them. Most people use them somewhat responsibly. I personally have over a dozen different credit cards, most of which I rarely use. I have so many cards because I want take advantage of all the things they have to offer like rewards points, cash rebates, 0% loans, frequent flier miles, rental car insurance, gas discounts, supermarket discounts, travel discounts, cash bonuses, etc.

[alohakat]

Re: What credit card should I get as my first?

I work in the mortgage industry and look at credit reports all day long. So maybe I can shed a little bit of light here.

Firstly, you cannot gain a credit score by using a debit card. "Debit" means tapping money already there. You can't have a bad charge because there is no "credit line" attached. No one has issued you credit with a debit card. Therefore there is no one reporting you to the bureaus for simply using your savings or checking account. It doesn't matter that the "Visa" or "Mastercard" logo is on the card -- they are only doing the servicing of the transfer of money. "Visa" and "Mastercard" do not report to the bureaus; the lenders do. There is no lender with a debit card.

Credit scores are often referred to as "FICO" scores, which is shorthand for "Fair Isaac Company" scoring model. There are other scoring models reported by the three main bureaus, such as "Beacon" and "Emperica" but we often use the word "FICO" generically for all the scoring models. And there are "cheaper" versions of your "FICO" which are often the versions being touted in commercials for you to buy. They are not the true scoring models lenders use.

To gain the highest scores possible, use a credit card or two BUT NEVER CHARGE MORE THAN 30% OF THE AVAILABLE CREDIT LINE. This is very important and will keep you score rising (if all payments are made on time of course). Charging more than 50% will start your score falling, and nearing 90-100% will absolutely plummet your score. And confirm what credit line is being reported to the bureaus -- it is often only your highest amount ever charged, not the true limit. Creditors don't want to advertise how much they've given you. (IMO, this should be illegal, and is being disputed legally at this moment.)

Installment loans such as car loans will not plummet your score when "charged 90-100%" because they are scored differently. We can see whether an account is revolving or installment.

When buying a computer, this registers on your credit report as a "revolving charge account" just like a credit card. And if you buy a $1000 computer, you have just gained a $1000 credit line and charged $1000 against it, which does NOT help your score, unless you can immediately pay maybe 200-500 against that account to bring down the percentage of line used, and continue paying much higher than the minimum payment. Then it will actually help your score and be a good way to establish credit.

To buy a home, you need 3 tradelines of credit. "Alternative" tradelines are OK (such as power bills, etc) but will result in a higher interest rate. To get the best interest rate, maybe buy a car on credit and pay down over 1-2 years, and maybe have a couple of credit cards to which you charge your groceries or phone bill and then pay in full at end of month.

If disipline is a problem, get the credit cards, set up a couple of bills to "autopay" to these cards, and then give those cards to Mom/Dad/Sis/Bro/bank lock box, etc, where you cannot touch them again. And pay the bills like you would the utilities, especially if it's utilities you are charging.

I'd be happy to post more; hope this helps for now!

[Miulang]

Re: What credit card should I get as my first?

More sobering words about the pervasiveness of credit cards and what they are doing to the middle class:

It is variously estimated that debit cards will account for 26% of retail sales volumes between the Thanksgiving and Christmas holidays this year, up 3% from 2005. The busiest shopping period of the year does not occur on Black Friday, as is widely reported, but between the 11th and 17th of December. During this span Americans will likely spend $34 billion on credit and debit card purchases; and nearly $86 billion between Thanksgiving and Christmas. Billions more will be spent on store issued credit cards. In total, Americans will accrue $135 billion in additional credit card debt this holiday season.

To date, credit card volume is running 11% percent higher than last year. The National Retail Federation estimates that over $454 billion will be spent by American consumers during the holiday season this year, including cash purchases. That represents a 5% increase over the previous year, while VISA USA estimates overall retail sales for the
2006 holiday season to increase by 7.5%.These are truly staggering numbers that are not easily grasped.

By paying only the monthly minimum payments, as so many struggling families do, it may require more than thirty years to pay off a dress or a power tool that was purchased at the local mall on Black Friday. That makes for a pretty expensive gift and every year additional debt is accumulating upon the old, making extrication very difficult, if not impossible. But that is the whole idea behind predatory capitalism. Industry insiders refer to the small percentage of card holders who do not carry a monthly balance as ‘dead beats.’ Consumer traps are engineered into the system that all but guarantees that card uses will be late making their payments or exceed their credit limits.

Imagine, paying off your credit statements in full and being called a deadbeat because the credit card companies can't make any money off you!

Miulang

[mapen]

Re: What credit card should I get as my first?

I work in the mortgage industry and look at credit reports all day long. So maybe I can shed a little bit of light here.
[...]
To gain the highest scores possible, use a credit card or two BUT NEVER CHARGE MORE THAN 30% OF THE AVAILABLE CREDIT LINE. This is very important and will keep you score rising (if all payments are made on time of course). Charging more than 50% will start your score falling, and nearing 90-100% will absolutely plummet your score.

Thanks for the excellent post, alohakat! Lots of great information there. I've known that using more than 50% of your credit will start to bring your score down, but I didn't know about the 30% "plateau". If it's not until 50% that your score starts to get hurt, why do you recommend not going over 30% instead of 50%?

[alohakat]

Re: What credit card should I get as my first?

Mapen, between 30-50% credit line usage on a credit line will usually just keep your score flat, and depending on other factors may still slightly drop your score. What we in the industry know about scoring comes from years of observation only, as the credit bureaus do not give out their formulas or software for scoring. So what I observe with my clients is that usually when they go from below 30% to closer to 50%, the score may vary by only a few points downward to flat. But there is still the risk of dropping more than a few points, especially if it is multiple cards that are being affected.

And most importantly, when someone is on the cusp of rating plateaus, for example maybe a score is 725 and a higher charge balance will drop the score to 719, now a person may not qualify for 0% promotional financing on a new vehicle, for example. Sometimes 3-5 points can make a huge difference. Sometimes it won't matter.

[mapen]

Re: What credit card should I get as my first?

Thanks for the insight, alohakat. That's good to know for when when I someday apply for a mortgage.

For now, I'm flaunting all the rules in order to take full advantage of 0% APR offers

[adrian]

Re: What credit card should I get as my first?

Okay, for some weird reason, my Mom asked me to apply for a credit card at Circuit City to buy a video camcorder. Apparently, she bought a first camcorder (from the sound of things, its the same one I "bought") and when she wanted to get another one, she couldn't. We've been financially stable since I could remember, so that wouldn't pass that my Mom would be in financial troubles and will be passing it on to me. She told me that she'll make the payments for the video camera and I then can use the card as I please. I go to the store and apply for the card, and I get approved for $2,000. I then bought the video camera, but I have mixed feelings, because this is my first credit card, but my Mom will be making the video camera payments.

And no, I won't be blowing it all on computer stuff.

[alohakat]

Re: What credit card should I get as my first?

doc, it's OK that she's helping you establish credit. If she is mailing the checks in "for you," just check to make certain the payment is posted each month on the day before the last grace period day. If it doesn't post, you don't have to accuse her of not paying, just go down and make a quick minimum payment immediately and then either check again in a few days to see if her payment posted or let her know her payment "must have gotten lost," or something. In other words, you are responsible for checking the account and don't rely on her (or the mail) to make sure a payment posts, and you are responsible for running down there to make a payment before a late charge occurs. If you incur a late charge, they'll probably up your interest rates (sometimes up to 29% annual interest or even more if you are late!) and charge a fee, and if 30days late it will be bad for your credit score.

And there could be a lot of reasons she couldn't get credit this time -- too many inquiries, addresses don't match, file flagged for possible ID theft, wrong data entry so SS doesn't match, too much recent credit, debt ratios now off, etc. No matter what, it's all fixable.

[Hellbent]

Re: What credit card should I get as my first?

did you get a discount for signing up for and using a circuit city credit card? i know i used a home depot credit card 10% off bonus to buy all the power tools, paint, and hardware to renovate my first store.

[alohakat]

Re: What credit card should I get as my first?

In general, I highly caution against falling for "10% discount today when you sign up for our credit card" ploy. Of course, if you are spending $5000 at Home Depot, $500 will possibly win you over.

The reason I caution against it, is usually you are only saving $10-50, and opening another credit card is going to LOWER you score in most instances. To have an 800 credit score, you DO NOT want 10 to 20 credit cards and a car payment, but simply 1 or maybe 2 credit cards and maybe one car payment and a mortgage. Your score will be lowered from the inquiry by the store, and then it will again be lowered if they give you a 500 credit line and you charge 400-500 against it that day -- over 50% charged. (Again, though, if it is your first card and you can immediately pay down to less than 50% charged, go ahead.)

Usually saving 10% today costs you much more in ability to obtain lower interest rates with higher score tomorrow. Save your score in case of emergency. You never know when the car engine is going to blow.

[zff]

Re: What credit card should I get as my first?

Auwe! I seem to be doing it all wrong.

I have one of those airline credit cards with an annual fee, and I use my card as often as possible. I charge everything; gas, groceries, dining out, clothes, electronics.... Heck, I'd use it to pay my mortgage if they'd let me.

I pay off the entire balance every month, but I use the card heavily to score as many free trips as I can. I wonder what effect this has on my credit?