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Thread: Credit cards

  1. #1

    Default Credit cards

    I'm asking for some financial advice for someone, like myself, who has a low credit score and is looking for a fist time credit card.
    After looking around on the internet, I've found a card that sounds pretty good, and I've been approved for it (Capitalone secured mastercard). I've talked it over with my parents, and they don't think it's a great idea considering their as well as my older brother's experience with them. My thoughts are, I leave for school in a month, I have some money saved to pay for rent, food, insurance etc for a little bit and I have gotten a few part time job offers already. I'll be at school for 6 months (trade school) and then I'll be off to start working (already have a job offer from a from a friend). I want to make sure that when I leave school, I'll have a good enough credit score that I'll be able to get an apartment and a car not too long after that. On top of that, I'm worried that a minimum wage job might not be able to cover $800 a month of expenses.
    To get straight to the point, a minimum wage job will be able to cover a minimum payment (and then some) and I'll be able to pay it off completely once I start working in my career. So...thoughts?

  2. #2

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    Simply don't do it. Credit cards are great when you don't have the cash and can pay the card off when you get the bill. But they can "snowball" too and you will soon find out you don't have enough money to pay the bill off. Meanwhile, the credit card company will be adding interest and being your first card, it's probably a high interest rate, around 25%, I'm guessing. Wait until you make a little bit more than minimum wage. By all means get the job but wait until you have been employed for awhile and maybe have a raise or two under your belt before you apply. Job security goes along way for your credit score.

    The worst part would be if you somehow lost your job and had a credit card debt. You would still be responsible for it. I'm sure your parents would pay it off for you, but you want to show your independence. Please wait.

  3. #3

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    Quote Originally Posted by Chanch0 View Post
    On top of that, I'm worried that a minimum wage job might not be able to cover $800 a month of expenses.
    That's a huge red flag - you're asking about getting a credit card specifically because you want to be able to not pay in full every month.

    Also, this idea doesn't even work with a secured card, where you're putting down collateral, usually equal to the credit limit, anyway. Those cards are designed to help people build credit, with a hybrid product that charges an annual fee to lend you back your own money but which does report to the major credit reporting agencies.





    What I would say is that there's a good argument for a getting a card that you don't actually use to build credit, but only if you can stick to not treating it like a piggybank. Having a credit history is valuable for things like apartment applications and utility deposits, but not so valuable that it's worth taking on debt at 15-30% APR just to have that history.

  4. #4

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    I'd say, Zipperless's advice is good. Entry level credit cards, 'starter' cards, "credit building" cards, however they are marketed -- are generally predatory. It's probably best to stay away from them. Things can quickly get out of hand and snowball.

    That said, Secured Credit Cards will help you establish and create a credit history. But, remember -- you literally pay for your own credit. If you want $500 credit, you pay a $500 deposit to establish that credit. And remember, this is not a debit card. What you charge, isn't deducted from your deposit. It's in addition. Anything you charge you have to write a check to pay for. You don't get that $500 back until you $0 the balance and close the account, or, qualify for an unsecured card.

    Can you float $250-$500-$1000? Also, you can most certainly end up owing more then you deposit. If you max out the card and don't make payments, you'll still accumulate interest fees, late fees, and over-the-limit fees.

    "Secured" doesn't mean risk free or imply that you can walk away and just have the deposit cover everything.

    If you don't pay off the balance every month the interest charged can be very heavy. Many credit cards, just even in general, charge between 20, 25, or 30% interest.

    To build or establish "unsecured" credit, though, you'll have to charge stuff to the card then pay off the balance. If you establish, let's say, a year of on time payments then I'd think the bank would consider it acceptable to either reduce or eliminate the amount of your credit that has to be secured.
    Last edited by BluMew; 30-Sep-2015 at 07:17.

  5. #5

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    Quote Originally Posted by Fruitkitty View Post
    What I would say is that there's a good argument for a getting a card that you don't actually use to build credit, but only if you can stick to not treating it like a piggybank. Having a credit history is valuable for things like apartment applications and utility deposits, but not so valuable that it's worth taking on debt at 15-30% APR just to have that history.
    This. It's very useful to have at least one credit card because paying it consistently and on-time is the way that you build up your credit score, which is important for later things like buying a car or a house someday. But, credit cards are (arguably) the single worst way in the financial system to take a loan. Don't spend more money on a credit card than you'll have at the end of the month to pay it off. The way I do it is to treat each credit card purchase like an account withdrawal: I'll only put something on a credit card if I have enough money in my account for the purchase. Credit cards are nice because they mean you don't have to carry around tons of cash all the time and they do a great job of tracking your purchases and protecting you from fraud (the credit system actually has an excellent setup in place for catching and refunding fraudulent purchases).

  6. #6

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    Quote Originally Posted by ArchieRoni View Post
    But, credit cards are (arguably) the single worst way in the financial system to take a loan.
    Not quite. Payday lenders will always have credit cards beat, to say nothing of black market loan sharks. However the point remains - credit cards are a very expensive way of borrowing, even over the short-to-medium tern. Have you investigated alternative means of borrowing?

    I have to echo the other posters - credit cards are a great convenience, but only if you pay them off in full each month. Once you start carrying a balance, it becomes all too easy to lose track of just how much you are spending - a little here, a little there, "it doesn't matter, I'll pay it off when I'm working" - and pretty soon you're carrying 000s for frivolous purchases at 30% interest. Safely using a card for borrowing requires tremendous discipline.

    How big a deposit does the CapitalOne card require relative to the credit limit anyway? If you have to lay down a significant fraction of your ultimate credit limit in deposit, there's scarcely any point - you're losing access to your savings without actually gaining the ability to borrow significantly.
    Last edited by Akastus; 30-Sep-2015 at 07:38.

  7. #7

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    Quote Originally Posted by ArchieRoni View Post
    But, credit cards are (arguably) the single worst way in the financial system to take a loan.
    No, heck no. That goes to "Payday" loan or cash advance on your paycheck loanshark operations. Choose any other option the a payday loan.

  8. #8

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    Quote Originally Posted by Akastus View Post
    How big a deposit does the CapitalOne card require relative to the credit limit anyway? If you have to lay down a significant fraction of your ultimate credit limit in deposit, there's scarcely any point - you're losing access to your savings without actually gaining the ability to borrow significantly.
    Typically it's a deposit equal to the desired credit line for US secured cards, and the card carries a smallish annual fee. These cards are otherwise unremarkable - they're coming from legitimate issuers rather than predatory ones. They're marketed as a way for those with no history or bad history to start building history when they otherwise can't qualify for a regular credit card.

  9. #9

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    There's some good advice here, thanks everyone for responding. I'll wait it out and just spend my money wisely while in school and wait on the credit card until I'm working in my career

  10. #10

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    Everyone's already said it, but yeah, bad idea.

    With a credit card:
    - The interest usually compounds _daily_, not monthly
    - The interest is usually from the time you made the purchase, not when the bill was due

    These combined with the high APR make floating a balance on a credit card a very bad idea. It's not something you ever plan to do, more an option that's there if you run into some short term financial trouble.

    If you've got family willing to co-sign, a car loan is a much better way to build up credit in my opinion. You're probably going to need one anyway, and they are usually much more reasonable for people with little or no established credit. Recurring bills also count on your score.. so things like a cell phone if the bill is in your name will help.

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