The POWER of Credit Cards!

Ok so I’ve been talking to a lot of my friends and many of them use debit cards (issued from their bank). These cards take money directly out of your bank account when you make a purchase. It’s usually the same card you use to go to the ATM or to make a withdrawal at your local bank. Sure these cards are convenient because you don’t have to worry about paying credit card bills every month, but they have one disadvantage which is they don’t help you build your credit history.

What the heck is a credit history? It’s your (financial) permanent record. Much like your school transcript, driving record, or criminal record, it sticks with you for a very long time. When you go out to buy a car or buy a house or even just rent a place… lenders look at your score to see how responsible you’ve been. So now back to the debit card, these cards don’t go on your “permanent record” so it can’t help you build your history. It’s like taking a Physical Education class, yes it’s a class but it doesn’t really help you GPA wise. So by now you should get the idea that credit cards help you build your history.

So when can you apply for a card? First, you need to be 18. Unless you’re like Andy and it takes you 6 years to finish high school, for most people when you enter college you should be around 18. This is why at every college there are tons of banks soliciting you to sign up for a credit card. There are tons of credit cards to choose from and the best part is many of them earn you rewards. Yes! Other than building your credit history, you get a bonus for using your card!

Usually when you first apply for a card they don’t give you a whole lot of rewards but luckily Citi Bank has good cards for college students. The one I recommend is Citi® Dividend Platinum Select® MasterCard® (or Visa Card) for College Students. When you sign up they will give you 5% rewards at supermarkets, drugstores, gas stations & utilities for 6 months; and 2% thereafter. So for the first 6 months you can earn 5% back when you buy food or pay for gas. OooOoo 5%? Some of you may not think that’s a lot but let me give you an example. Today I went to Chevron to fill up on gas. The price was at $3/gallon. So 5% of $3 is 15 cents. Doesn’t sound like a lot right? Then why are you bitching when gas goes up to $3.15? Now lets finish this math equation… $0.15 x 20 (my car has a 20 gallon tank) = that’s $3! So when you use your card that’s like getting one gallon for free! That’s equivalent to driving 25-30 miles for FREE. Now 5% doesn’t sounds so small (like Andy) anymore right?

So how much can you spend on a credit card? When you first apply your limit is usually $3,000. But it slowly grows as you continue to use your card. I’ve had my Citi card for about 5 years now and my limit is now $13,000. The higher your credit card limit, the higher your credit score! Your credit score depends on lots of other things too, like not spending too much and paying on time. But that’s for another post.

By now I hope I have persuaded you to go out there and sign up for your own credit card. Just don’t make the same mistake as me. Apply for one card ONLY. Wait a couple weeks to see if they approve you for their card. If they don’t approve, you can try one more company. But don’t go out there and apply for a million cards because guess what? This hurts your credit score as well! Now good luck, build that history, and go earn those rewards!

-401k