When Should You Get a Credit Card?

A credit card is a signal of maturity and adulthood; but is it the right move in your current financial position? There is no set age when signing up for a credit card, is appropriate rather the decision should be based on your current financial position. Below we look at the various factors, pros and cons that should be considered when making this decision.

Pros of Getting a Credit Card:

1. An option for emergency purchases. If you have a purchase that must be made but don’t currently have the funds, a credit card will give you a short window of time to gain the required cash to pay off your bill. Beware of the credit card debt that as we will discuss later in this article, do not make a purchase unless you are certain you will have the money to pay off the credit card bill in the near future.

2. Earn rewards. Even if you have plenty of funds to pay your bills immediately, rewards can be obtained by using your credit card. Many credit card companies offer customers air travel miles, cash back on purchases and payments, gift cards, and more.

3. Build a credit track record. When you feel that you are in a financial position that will allow you to pay off your credit card bills, using a credit card to build your credit card will serve as an advantage when applying for a loan in the future. Having good credit also makes you more appealing to landlords who are renting out their property as you are assumed to be more likely to pay rent on time. If you don’t have credit or have poor credit it can be difficult to sign a lease without a co-singer. In general, if you have no credit history, you will be seen as a bigger risk to give a loan.

4. Organization. Instead of keeping track of your water, electric, garbage, heat, plumbing, etc. bills, link them to your credit card. This allows you to pay one bill at the end of each billing period. Makes things simpler and less time consuming.

Cons of Getting a Credit Card:

1. Interest Rates. When you miss or are late on a payment, the penalties can be monumental. The bank will charge you interest on your bill which will result in you owing more than your bill originally was. These interest rates can be steep so make sure you review them interest rates of credit cards before choosing one.

2. Building poor credit. Late payments will lower your credit score making it extremely hard to obtain a loan. If a bank approves your loan application you will likely need to put up a large amount of collateral and/or have a cosigner.

Overview:

If you feel that you are in the a financial position where you have a steady income and will be able to pay off your credit card bill by the due date then it can be very beneficial and accelerate your path to financial independence. However, the penalties for not paying your credit card bills can put you in debt and an overall horrible financial position. Be sure to review the interest rates and other terms of your potential credit card before signing up for one.