Investing Simple is affiliated with Credit Land.
Welcome to the adult world, in which you can vote, sign a lease and take out a credit card.
But there’s a lot to know about credit cards before you sign up for one of those flashy offers that come in the mail or pop up on your smart phone. Remember, they are designed to reel customers in, but the details about interest rates and other tidbits that will affect you longer term are in the small print!
In most states, you need to be at least 18 to even qualify to apply for a credit card. And if you’re under 21, you will need a co-signer on your credit card application. Pesky federal laws require that people under age 21 must have quantifiable income before they can be approved for a credit card without a co-signer.
What does this mean in hard, cold facts? It means you must have a paper trail of reliable income from a paying job, at the very minimum a part-time gig. A one-time loan from Uncle Joe or a nice sum of high school graduation checks do not qualify as sustainable income. Sorry.
Looking to build your credit score? Here is our complete guide.
But if you have enough independent income or savings to show that you can, all on your own, pay off debt, you may be able to be approved for a credit card in your own name.
If you’ve reached the old age of over 21, credit card restrictions aren’t as strict. You will still need to demonstrate a regular income, independent of parents or other adults, but you can include any income you have, including part-time jobs, commissions and side hustles.
Think all credit cards work alike? Think again.
The Big Pitch
One of the most obvious heavy pitches for companies vying for your business are the on-the-spot offers every time you cash out at a retail store.
Ever wonder why the sales people take the time – and risk looking pushy – by offering to take your one-minute application right then and there? Well, for one, they’re required to. But for two, most make a small commission or points towards a prize for each application they take – whether the customer qualifies or not. There are even in-store competitions for the cashier who takes the most applications. Take these factors into consideration, and it’s a wonder they don’t follow you out to the parking lot to take your credit card application!
Easy To Get, But Use With Care
If you can prevent yourself from going hog wild with a store card, this might be a feasible option for a non-traditional credit card.
Your first temptation will come immediately, since retail cards offer deep discounts on the first day of use.
Consider this scenario: You scored big on Levis and hoodies at an outlet store, even got a shopping cart because it was too much to carry.
The cashier sees you coming. There’s a light behind her eyes. A certain sparkle that spells anticipation of a commission.
Sure enough, as soon as you unload your clothes, the pitch begins. You’re offered a one-minute application for an outlet credit card – actually, a card good at its sister stores as well – which if approved will save you 15 percent on the spot.
If it’s not approved, well, then you aren’t a customer of interest and you may as well move along.
So there you are, given an option that needs a decision pronto.
First of all, NEVER make a financial decision at a check-out line! There are angry people behind you who will glare, mutter under their breath and even jostle your shopping cart to get you to move along. No one wants to be behind the guy who can’t decide whether or not to take out a credit card. Would you?
STOP! Before you take out your first line of credit, read our guide to getting your very first credit card.
Best Retail Strategy: Pay With Cash!
The best way to pay for those jeans and hoodies, of course, is with cold hard cash. Optimally, these greenbacks have come from a carefully planned clothing budget that allows for an expenditure for your most needed wardrobe items. In other words, you’ve saved up and planned for this shopping spree.
Studies have shown when people pay in cash, they are less likely to spend impulsively. This can be attributed to the fact that swiping a debit card is so far removed from handing over bills, it almost seems like not using money at all. But when you dole out 20s, all you can think of was how many hours it took you to earn that bill….and many times, that egg sandwich isn’t worth it.
So we urge you to pay cash whenever and wherever possible. And to have planned this purchase as part of your ongoing monthly budget.
Building A Decent Credit Score
But maybe you’re specifically looking to build up your credit score.
Curious about your score? Check it here.
One thing cash doesn’t offer is a chance to launch a solid credit history. Credit cards are a great way for you to begin doing this so that you can eventually qualify for a lease, a truck, or even a mortgage when you get to that point way down the road.
Simply put: you will need to show a credit score for anyone to take the risk of handing you a loan.
If you’ve never had a credit card or any type of loan in your name, you’re considered high-risk because you have a credit score of 0.
Here’s how it works: credit scores typically fall within a range of 300-850. For most adults, their score falls in between 600 and 750. A score of 700 or above puts you in the category of having “good” credit. Score 800 and up, and you’ve hit the big time with the status of excellent.
Clearly, you want to shoot for the start and reach the highest credit score you can.
The longer your documented credit history is, the better. If you can show a handful of years of wisely managing credit, that works to your advantage.
Around two to four years of smart credit management will build confidence in lenders and earn you the stamp of approval to your loan application.
Who looks at credit scores? Everyone! Well, not your parents. Probably not. Credit scores are tracked by banks that approve or turn down mortgage loans, car dealerships financing your next vehicle, insurance companies and even potential landlords.
You can and should keep an eye on your credit score using one of the many sites allowing you to look for free.
Back To The Store Credit Card
Traditional credit cards require a good credit history just to qualify, which basically leaves you between a rock and a hard place.
Retail store cards frequently have more relaxed underwriting than general use credit cards. This means they are more likely to grant you approval with a shorter credit history or a lower score.
Remember, the corporations that own the retail chain – and the cashiers itching for commission – want to get you approved. They’re betting on the chance that you might go on a spree, charge up to your limit, then take time paying back, which earns them a ridiculous amount of interest fees.
But that’s not you!
Another popular option for youngsters is the secured credit card.
You’ve studied up on the facts, you’ve read this blog, you know how to make smart decisions.
This also means you understand the terms of the card, that you’ve read the small print and the scary interest rates associated when you carry a balance over from month to month. If you aren’t up to speed on these really important details, pass on the application.
IF you have the cash in your account carefully budgeted for clothing, AND you don’t have twice that amount of merchandise in your cart, AND the terms are agreeable, go ahead and apply. It only takes a minute and you have a 50-50 chance of being approved.
So you’re approved, phew!
P.S. If you are not, don’t fret! Consider a credit builder loan.
Now you will want to take advantage of that discount on the items ALREADY IN YOUR CART! That does not mean go back and add to your inventory! Impulse spending is always a mistake. Take it from us.
Know Your (Credit) Limit!
Your approval will come with a pre-set credit limit. This sets a ceiling on how much debt you can carry on your card monthly.
Expect to see a limit of $500 to $1,000 on your first store card.
Here’s another valuable bit of advice: ALWAYS keep your balance well below your limit. Industry experts set the figure at 30 to 50 percent of your limit. This will assure creditors can see you aren’t in the habit of spending wildly.
So if your cart load of clothes will push your limit, get out of line and put some items back on the shelves. Try not to make eye contact with angry shoppers who’ve been waiting in line behind you during this process.
When The Payment Deadline Arrives…
Usually on the first or last weekday of the month, your statement will become due.
The only smart move is to pay it off IN FULL on that due date (or before if you can swing it).
This prevents you from carrying over a balance that will be hit with high interest rates. The longer you carry a balance, the more debt you accrue. People pay multiple times over the value of their actual purchases in interest payments.
Final Thoughts On Store Credit Cards
It’s still a good idea to use cash for most of your purchases, which you can do for small expenses like that egg sandwich.
When you go into Gap, who awarded you the store credit card, resist the urge to become a compulsive shopper.
Yes, you want to spend some amount, then pay it in full when due, to build your good credit history.
This DOES NOT mean buy out the store. People are especially tempted to over-spend during holidays, only to find themselves credit heavy and cash poor in the new year.