This article was written by The Zillennial Zine’s summer editorial intern Connor Hanrahan. Find him on Instagram at @hannerhansmh. If you would like to share an article with The Zillennial, send us an email at thezillennialzine@gmail.com.
Credit cards are far and away the most abused and improperly used financial tool used by young people. Sooo many people think of them as free money and use them as a supplement to their money, instead of using them as a more beneficial alternative to swiping their debit card. And frankly, this is not our fault. Credit card companies make no effort to inform users of proper spending habits or the best ways to mitigate abuse because they make all of their profits from users who abuse their cards until they’re in debt. This article will help explain credit cards in layman’s terms and answer a couple important questions. Are student credit cards easier to get? Which credit cards are best for young people? Which credit cards are best for students?
A Wee Little General Breakdown
A credit card is essentially a debit card filled with a certain amount of money you are borrowing from the credit card company. You are limited to however much money the card holds at one time. This is listed within the info paper you receive with the credit card and is called your credit line or line of credit. The ONLY reason you should use a credit card is to take advantage of the benefits that card offers. For some, it’s a 1-5% cash back on all purchases. For others, it’s a points system with redeemable rewards. We will discuss these in the next heading.
Until then, here are a few tips I always adhere to that have ensured I never miss a payment and increase my credit score.
First and foremost, credit cards are NOT to be used as free money. Sure, credit cards may feel like free money because your credit line wasn’t earned or worked for, but overusing a credit card can result in debt, subsequently leading to a drop in credit score, which can result in any number of indirect repercussions including (but not limited to): Being denied a car or housing lease, being denied a loan, being denied a mortgage, being denied an apartment rental, or being denied a student loan.
Secondly, paying off your card as you continue to use it is a terrific way to make sure your spending stays within your financial means. Every month you will have a “monthly payment” due that will consist of a portion of your card’s outstanding balance. Paying this will keep you in good standing with the card company, but is an inefficient way to pay off the card because it will take forever and somewhere nestled inside that monthly payment is typically some interest and other fee. We will discuss this later.
Thirdly, do not EVER get a credit card if you do not currently have a job. You can scrape by the first few pay periods but the moment your credit balance becomes high enough, your credit score will start tanking and, depending on your APR, your monthly payments will start increasing.
Jargon and How It Affects You
APR: The lower the number, the better off you are and the easier it is to stay out of debt. However, all the credit cards with the most rewards have high APR’s. APR cannot and will not come back to bite you if you never have a balance by the time your monthly payment is due. I always recommend people begin their credit portfolio with a 0% APR card so that they’re introduced to credit spending in the friendliest way possible.
Annual Fee: This is exactly what it sounds like. It is a fee the card will charge you every single year just for owning and using the card. Some cards have none, others have $550 annual fees like the Chase Sapphire Reserve card.
Now, let’s discuss some three of the best introductory credit cards for young adults.
Discover It Student CashBack Card
This is the card I got when I went off to college and I couldn’t possibly recommend it enough. It comes with the following features:
- No annual fee
- 99% application acceptance
- 0% APR for first 6 months, 18%-27% afterwards
- 1% cashback on every purchase (unlimited)
- 5% cashback on spending categories that rotate quarterly (limit to $75 cashback/quarter
- I.e. July-September: 5% cashback at Walmart and Grocery Stores.
- Cashback can be redeemed at any time and never expires
No annual fee and 5% cashback make this card a must for somebody who doesn’t spend much money in general, like students. 5% may not seem like much, but it really adds up in the long run. Plus, an annual fee-less card makes for a great first card because of how credit longevity affects credit score. This card is made very easy to get, just like most student cards, because lenders understand that students typically have no financial history.
Chase Freedom Flex and Unlimited Cards
These cards are almost the same but have a couple key differences. The Freedom Flex card utilizes quarterly rotating 5% cashback opportunities (and general 1% cashback) like the Discover It Student card. The Freedom Unlimited card instead offers unlimited 1.5% cashback on everything.
Both cards offer 5% cashback on purchases made through the Chase Travel Portal and 3% cashback on drugstore and dining purchases. Both also offer:
- No annual fee
- 0% APR for the first 15 months, then 20.5% – 29.25% after
These are quality alternatives for an initial credit card due to their inexpensive nature. They’re also good choices if you someday plan to incorporate a Sapphire card, which is in my opinion, the ultimate grown up credit card.
Chase Sapphire Preferred
This is a grown up adult card and not to be taken too lightly as it has an annual fee of $95. It also comes with a stiff APR of 22%-30%. However, this is not all for naught. It comes with a plethora of benefits and discounts that can hardly be matched by any other card with the same annual fee. There are far too many to list, so I wont, but each heading is also a link to the advertised card and this is one definitely worth checking out if you have the financial stability for it.
Credit Score
Credit Score is one of the least tangible numbers that will ever drastically impact your life, and 90% of people have no idea what affects it or how each contributing factor is weighted. Let’s cover that really quickly.
Payment History (35%) This reflects how responsible you have been in repaying your credit. Avoid late payments at ALL costs because this is the most heavily weighted contributor to your credit score.
Amounts Owed (30%) This doesn’t mean that using your credit is bad, in fact, it is worse for your score to not utilize your credit at all. The best way to keep this factor stable is to use reasonable amounts of your credit and pay it off responsibly. This shows lenders that you regularly use your credit and can be trusted to always repay it when you do.
Length of Credit History (15%) This is affected by how long you have been borrowing. The longer your credit history, the better. This is why I advocate for an entry level no annual fee card. You can have the account forever, hardly use it, and just having the account positively affects your credit score.
Types of Credit (10%) This assesses how many different types of credit you use, whether it be car loan, home loan, student loans, etc… The greater the different types, the better.
New Credit (10%) This assesses how frequently you take on new credit that you don’t need. For example, having several sources of credit and still taking credit cards from Sears, Best Buy, and Lowe’s just because you can. I advise against using store based credit cards because they typically come with abnormally high APR’s and aren’t very applicable unless you have a business that frequently purchases items or wholesale from that specific store.
All in all, credit cards are a volatile blessing, much like a machete while adventuring through the jungle. It’s very useful for progressing, but one wrong move or bad decision and now you’re in deep, deep trouble. Responsibility is imperative. People who abuse credit cards severely never recover financially. Occasionally people have their belongings repossessed and sometimes even their property because they dig themselves into a hole that no ladder can get them out of. It’s extremely simple to avoid this and I strongly advise that after you get your first credit card, you follow the tips in this article so that you never end up like them.
On a more positive note, some of these cards can make your year. Recently, my family booked a trip to Hawaii with an 80% discount by using our combined Chase Ultimate Rewards points. We used our cards responsibly, made all of our payments, and now we are being rewarded for our troubles. You can absolutely do the same and reap the rewards you deserve by being financially responsible.
Before we wrap this up, here is one of my favorite finance YouTube Channels: Daniel Braun. This guy is a whiz and has covered every question I’ve ever had. I recommend checking out his channel.
What do you think? Did I miss a card that you love? Is a JoAnns membership credit card better than I presume it is? My mom sure thinks so and who am I to disagree! Let us know in the comments below, and most of all, I hope I was able to clarify some of the minutiae of credit cards for you.
Are student credit cards easier to get? We hoped we answered this question! Let us know in the comments below, and most of all, I hope I was able to clarify some of the minutiae of credit cards for you.
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