• Lindsey Cassel

Should You, a Twenty-Something, Have a Credit Card?

guidance for those considering getting (or keeping) one of those complicated pieces of plastic

When it comes to credit cards, everyone has their own opinions. Some might say they’re evil, debt-accumulating plastic (and their point of view is valid, considering the fact that credit card debt is no joke). Others swear by them and the rewards they can bring. Credit cards can definitely be useful if managed well. In fact, I once met someone who boasted he had over 20 credit cards and was able to travel around the world for free with the bonuses he earned from them.

So, which side is correct? Is it possible to responsibly own a credit card? My answer: absolutely—but they probably aren’t for everyone.

credit score, defined

Credit is the ability to obtain goods or services before payment, based on the trust that the required payment will be made sometime in the future. Your credit score is essentially your trustworthiness as a borrower expressed in a number. Think of it as a grade for your credit habits.

There are a few different scoring models, but the most widely used is the FICO® Score. Credit scores can be as high as 850 and as low as 300 (but almost no one actually has a score that poor). In the United States, anything below 580 is considered a “bad” score and anything in the 700s is above average, according to Experian. The higher your score, the more likely you’ll get approved for a credit card or other types of money-borrowing activities. It is calculated based on a number of factors, including the following basics:

  • how long you’ve had credit for

  • if you pay your bills on time

  • how many sources of credit you have

You can read this article to better understand how your credit limit is calculated.

So how do you find out what your score is? You’ve probably seen ads about services that allow you to check it; just be mindful that you shouldn’t just use any service, as not all are harmless—some (namely, hard credit inquiries) can damage your credit! Research if your credit card provider or banking service has its own tool. Otherwise, use a free, online service like Credit Karma.

It’s highly unlikely that you’ll have an 850 credit score in your twenties, so don’t fret if yours isn’t where you want it to be. If you make responsible choices to build and maintain healthy credit, your score will increase with time and you’ll benefit from it more and more as you move forward through adulthood.

choosing the best card for you

There isn’t any one credit card that is right for everyone. The vast amount of providers and card options is evidence of that. So, you’ll have to do your own research based on your life and your needs. Here are some suggestions to get your search started.

One of the easiest ways to save some money while using a credit card is by selecting one with no annual fees. If you’re a first-time credit card holder, this is a highly recommended route to take. While many cards with annual fees can get you nice perks, there often isn’t a huge benefit for the average twenty-something. So carefully consider all your options before making this decision. If it becomes clear that the perks are worth the fee and you’re sure you can maintain it responsibly, go for it!

swipe within your means

When you get a credit card, you’ll be given a credit limit for it. This is the maximum amount you can have charged on that card before paying it off, and your credit score is one of many factors that influence it. It’s basically the money your credit card provider has determined you’re good for. The limit might seem low at first—especially if it’s your first credit card and you haven’t built up any credit yet—but it will get increased as long as you pay your balances on time, allowing you to make larger purchases at a time if needed.

No matter what card you have, watch. that. credit. limit! Just because your credit limit is the amount of money you can spend on your card in a month doesn’t mean it is the amount you should. Hypothetically, let’s say you have great credit and a stable, well-paying job. You might be given a healthy credit limit; however, if your income cannot cover the limit and you max out your credit card each month, you may not be capable of paying the bills when the time comes.

And what happens then? Borrowing from credit card companies usually comes with interest charged. A lot of interest. Depending on how long you take to pay off your original bill plus the money you borrowed, you are going to end up paying a large sum back to the credit card company, all because you didn’t spend within your budget.

If you want to get deeper into the math (and I don’t blame you, because frankly, credit card companies make it confusing on purpose), you can use this calculator to see how much interest you would pay on hypothetical sums of money—and probably lead you to think twice before making certain purchases.

Also remember that if you decide to max out again month after month, and still aren’t able to pay in full, you will be charged even more interest. As you can imagine, the cycle can continue for a long time, so it’s better to avoid getting stuck in it in the first place.

Bottom line: don’t spend money you don’t have on your credit card. It will cost you a lot more over time.

treat your credit card like a debit card

Okay, so you understand that you shouldn’t max out your credit card. Easy enough. But that doesn’t mean you can’t use your card ever.

So how much should you charge to your card? An easy way to think about how much you can reasonably spend is by treating your credit card like a debit card. With a debit card, money is taken out from your bank account as soon as you buy something. If your credit card did that, would you spend more than what’s in your bank account?

So, if you’re worried about getting a credit card, I would highly recommend “practicing” with a debit card. They’re the same conveniently swipeable pieces of plastic, and can teach you good spending habits if used correctly.

pay on time, all the time

If you manage your credit card use responsibly based on the principles above, you should have no problem following this advice.

When you look at your credit card statement, you’ll usually see three different numbers, sometimes going by different names, but always functioning along the following lines:

  • Minimum Payment - Exactly what it says—this is the absolute least amount you can pay toward your balance on or before your billing date without late fees, interest rate increases, or other penalties. Never pay only this unless there is a dire emergency.

  • Statement Balance - PAY THIS ONE! This is the full amount you actually owe the credit card company on your next payment date. If you’re doing it right (meaning, you didn’t only pay the Minimum Payment last payment cycle), it’s what you spent in the last month.

  • Current Balance or New Balance - This is the total amount of unpaid money on your credit card. This balance includes each and every purchase you’ve made since your last billing date. This is what will count towards your credit limit, so if you want and you are able you can pay this in full, but you’re only required to pay your Statement Balance each month.

If you pay your credit card’s Statement Balance on time every month, you will never be charged interest. Additional pats on the back for you if your card has cashback or other rewards, since it’ll be like you’re getting paid to use it!

Another thing to consider is setting up autopay so that you never miss a payment. If you’re very confident in your income and spending habits, you can make it so that money is automatically taken out of your account to cover your Statement Balance each month, and you’ll have one less thing to stress about!

check your statements regularly

With online banking, it’s easy to just let your credit card do its thing without watching it (even more so if you set up autopay), but this convenience also puts your credit card information at the fingertips of criminals.

You definitely don’t want to become a statistic as one of the millions of people who have gotten their identities or money stolen. Two simple ways to prevent this are to:

  • choose strong, unique passwords/phrases and change them regularly, and

  • regularly review your credit card statements to make sure all charges look familiar.

If you see a charge that you did not make—like you live in Texas and you see a Target purchase made in Minnesota—you can call your credit card company and dispute it. As long as you call within a reasonable amount of time (within the month or so) it should be easy to get your money back. Your credit card company will also send you a new card so the stolen information can’t be used anymore.

Checking your statements is also good practice to check that you weren’t ever wrongly charged for something you did purchase. Regardless of the circumstances, if you don’t check your statements often enough, you may not notice the charges until long after they’ve been made and getting your credit card company to refund you might be harder.

so, should you have a credit card?

The answer for if you should sign up for a credit card (or keep the one you already have) comes down to one main thing: whether or not you can make payments on time and in full every single month. If you can’t, you probably shouldn’t have a credit card. And that is totally okay!

Credit cards are not for everyone. Sometimes the costs outweigh the potential perks. Some people can’t help but be tempted to spend outside their means with a credit card, or know that making payments on a regular basis isn’t feasible for any one of various reasons. These people might instead have incredible success by relying only on their debit card or even on cash alone. Like most choices in life, it’s just about trying things out and finding what’s best for you.

In her free time, Lindsey Cassell founded A+ Adulthood, an online community for young adults looking for practical (and sometimes hilarious) solutions to adulthood’s challenges. You can learn ways to “adult” better by checking out her website.