This is the story of Emily Starbuck Gerson, a 23-year-old who lives in Austin, Texas, and works as an editorial assistant at CreditCards.com.
Living without credit
I grew up without much exposure to credit cards. My mom mostly wrote checks, and my dad (a criminal defense attorney) paid for everything in cash. I was taught to save until you could buy something, which is still a great lesson. My first major purchase was a Sega Genesis in first grade, which I still own (and still works). I painstakingly saved my $1.25 weekly allowance until I could afford it.
As I grew up, the more I heard about the horrors of credit card debt, the more I became afraid of credit cards. When I turned 16 I received a copy of my mother’s MasterCard, but it was for gas and emergencies only, so I just thought of it as Mom’s money. At university, my college fund, part-time jobs and some allowance sustained me. I thought I’d never need anything but my debit card.
Then one day in college while shopping at Victoria’s Secret, I said yes to the offer for the perk-filled Angels Credit Card. I said no a million other times, but when I learned you could pay it off in-store following the purchase, I caved. I was promptly denied, but I didn’t really understand why. I later learned that store credit cards have very high interest rates, which can be dangerous if you carry a balance…so it is probably best I didn’t get one before I truly understood credit responsibility.
Credit enlightenment
When my boyfriend got his first credit card last year, I said it was stupid. He sighed at my ignorance and said we must demonstrate responsibility with a credit card in order to build good credit, which was vital for the future. Ironic. I called my omniscient mother for confirmation. She agreed, and added that I couldn’t get a home or car loan without credit. Not to mention rent a hotel room or car. Having no credit apparently isn’t much better than having bad credit.
Half-way through my last year of college, I went to my bank (BofA) for a credit card. They gave me the Student Visa Platinum Plus — a no-frills beginner’s card, even though it sounds fancy. I can manage it online with my other accounts, so it’s really easy to transfer money and monitor balances. If it is possible for you to get a card through your bank for that very purpose, I highly recommend it.
Saved by the credit card
I began making occasional purchases with the card, even though I didn’t have to. I thought it was silly. After graduating, I had a PR/marketing job for a few months, but the company shut down. When I found this job, I was psyched…especially to learn more about personal finance, now that I realized I knew very little. The problem? I had 10 days between the two jobs, and my first paycheck was for only a week’s work. It would be three weeks before I was paid again. At first I panicked — I had money in savings, but I didn’t want to completely drain it. And I’d just told my dad I was ready to be financially independent. What’s a girl to do? Then I remembered I had a credit card! Hallelujah.
In those weeks, that credit card saved my behind more than once. One example: when my dog began copiously vomiting, I raced her to the vet. I was thrilled the tests showed she was OK, but felt sick myself when the bill totaled $240. With no income to cover it, I put it on the Visa, knowing I could pay it off with my next paycheck.
Lessons learned
It’s a huge relief to have a credit card as a back-up, as long as you remember the money you’re spending isn’t yours. Because I have been so careful about paying my balance off, my credit limit was recently raised. That’s a plus you get for being responsible, though avoid a high limit that will tempt you to spend way beyond what is necessary.
The most important thing I’ve learned is that building good credit is vital. When you apply for car insurance, they run a credit check, and those with worse credit usually have higher rates. When you apply for a job, many companies run a credit check to ensure you are financially responsible. When you apply to rent an apartment, a credit check determines whether or not you have a reliable payment history. Having bad credit or no credit can make your life incredibly difficult.
After learning all about reward cards for my job here, I felt like I was missing out with my plain-Jane student card, so I recently applied for a new card through my bank. My good history thus far allowed me to be approved. My credit limit is a measly $500, but I will soon prove worthy of a higher one. The reward program gives me an excuse to make purchases with the card. I am excited about a credit card for the first time, and it’s a cool feeling. I was also approved for an Angel’s card after building credit with my student card, though I haven’t once remembered to use it.
The moral of my story
If you are young and devoid of a credit card for whatever reason, strongly consider getting one. It’s a prime time to start building credit and learning how to be financially responsible. If you’re clueless, your bank can help you decide which card is best for you. But beware; if you get a student card, know that they come with a higher interest rate than regular cards, so late payments can really rack up debt. Always remember: What you put on a credit card isn’t your money. It’s a loan you must pay back.
Visit Emily’s blog for more!
Related posts:
While I think the twentysomething money stories are a great idea, I’m a little dubious of this one–she works for a creditcards.com and writes a paean to credit cards, ending with “strongly consider getting [a credit card]“? This sounds like shilling to me.
English Major: Yes, I do work for CreditCards.com, and the main goal of our site is to get people to apply for credit cards. But I’m in the editorial section, where our job and goal is purely to educate people about how to use a credit card wisely. If you look at the site, I recently put together a package on how to wisely and safely do a balance transfer. That is to help people — not to make money. I enjoy my job because it is something I truly believe in. So many people were never taught about personal finance, so I feel privileged that my job gives me the opportunity to objectively educate people.
Lovely story! I definetly plan on sending in one of my own.
I had a similar experience. As a college freshman I went to apply for a Best Buy card because of a promotion they did on our campus. If I remember correctly we got a $100 gift card for signing up for a card…anyway, a bunch of us went, but my application was denied. They explained to me on the phone I had no credit. I was stunned – I always paid in cash after all. I was as responsible as they come!
I wanted to buy a home after graduation, so I promptly contacted Citi and got the Dividend Platinum Select Visa to build my credit. I’ve had it ever since, and they’ve raised my limit several times. I now have great credit and bought my condo last year!
I told my little sisters immediately to get a card when they got to college. Obviously you don’t want to rack up balances though.
Emily has some good points. I didn’t have a credit card throughout college because I was scared of falling into the trap that many of my friends did – credit card debt. Nasty, nasty, nasty, and a hard pit to climb out of.
That being said, my credit is not as good right now as it could be because I’ve only had a card for a few years (I got one right after graduating). I wish I had a card in college that I used responsibly. Trust yourself, be responsible, build up your credit so you can buy a house (or a condo. or a shack. or some land. geez, Boston’s expensive.) someday.
Also – car insurance isn’t always influenced by credit. It depends on the state you live in.
“When my boyfriend got his first credit card last year, I said it was stupid. He sighed at my ignorance and said we must demonstrate responsibility with a credit card in order to build good credit, which was vital for the future.”
Are you kidding? You weren’t the ignorant one–your boyfriend was!
I respect your opinion, of course, Emily, but I strongly believe the opposite.
You don’t need credit to buy a house. You don’t need credit to get a job. You don’t need credit, period.
I was told by so many people I trusted–teachers at my high school, for example–that I needed to “build my credit” for a better future. So many people in the U.S. believe this. But this is only the way we’ve been conditioned over time by credit card companies. That we need to prepare ourselves for a lifetime of borrowing money. Because that’s what credit is used for–borrowing money!
Need a mortgage? They can do a manual underwriting! They can check to make sure you’ve had a job for a while and you can still get a mortgage without any credit whatsoever.
Need a car? Save up and buy one you can afford!
And about getting a job–there are much better ways of checking someone’s history–references, resume, etc. And if someone refuses to give you a job only because you have no credit, well, I’d be happy that I was spared from working for such an idiot.
If you don’t have the money for something, you shouldn’t buy it. As for emergencies, you should have an emergency fund as soon as you possibly can. Save up $1000 first and then after paying off any debt you might have, save enough money to last you 6 months in case you lose your job or something. Hospitals can take monthly payments. If you have a car, you can sell it and get a crapmobile for the time being. Cut down your lifestyle.
And even debit cards are dangerous. Studies have shown that people spend 12-18% more with debit cards than with cash! The reason: it hurts a lot less to swipe a card than to take out a $20 from your wallet.
My goal is to have a credit score of 0–meaning, of course, that I haven’t borrowed money in years and years. You DON’T need credit to survive in the world! It’s much more fulfilling, I think, to be self-reliant and independent.
If only I had wiser earlier
I agree with Madmermaid…you do not need a credit card to establish credit. Just like millions of Americans, Emily is sadly mistaken. We are fed lies that a car payment is normal, a 30 year mortgage makes sense, etc. etc. etc. We are in over our heads in debt and believe that we never have enough money no matter how much we make. A year ago I had hit rock bottom with debt and always feeling broke. I have now been recieving advice from a financial advisor and have been set up with Financial Peace University at my church and am finally in control over my money. I make 28,400 a year as a social worker and am able to save, tithe 10% to help others, and pay my bills, while still having over $300 disposable income to pay off my debt and start planning for my future. It is an awful feeling to be weighed down by debt and to feel like you never have enough money. I strongly recommend taking Financial Peace University, because Dave Ramsey uses strategies that work. You don’t have to live the rest of your life with money controlling your future. It is all a scam. The way we relate to money is wrong. If anyone needs help with their finances, help is available at http://www.daveramsey.com just click on the section that says Finncial Peace University. Honestly, I am 26 years old, almost 60,000 in debt, and finally feel like I can get out from under all of it. There is hope.