The credit question.

<p>Hi everyone!</p>

<p>In conjunction with "The banking question." thread, I was curious as to your input in regards to credit cards.</p>

<p>My parents wanted to get my brother and me credit cards (not a huge line of credit, just a modest $500 limit). What are your thoughts on the issue? I figure, I might as well get one so that I can start accumulating good credit at a young age. </p>

<p>It would, of course, be a joint account with my parents and I'll use it for small things, as opposed to using a debit card at places.</p>


<p>I think credit cards are a good idea, especially if you plan to fly back and forth from Smith. They're great for unexpected problems like baggage charges or needing to get a hotel room so that you can spend the night at the airport and wait out a snowstorm. But you just have to be really careful with them. They're tempting, especially when you live on a modest income.</p>

<p>If you have no real, significant source of income, I don't quite see how having a credit card can build your credit rating. That will come in a few years when you get a real job. No rush.</p>

<p>Why not get your parents to get another credit card issued for you on their credit card account? They are, after all, more than likely footing all of your bills. If, once in a blue moon, you are buying something that you don't want them to know about (like a father's day gift ? ! ), then use cash which you will withdraw from your BoA or "ghetto" bank account (see the other thread here).</p>

<p>A credit card with a $500 limit can be used to build a credit rating even without significant income, though the work study, etc., was enough to validate D's application. Use it, pay it off. Particularly the use it, run a balance for three months as you pay it down, pay it off. Rinse, repeat.</p>

<p>D also has an AmEx card on my account that falls into the "In Case of Emergency, Break Glass" category. But when she moved to DC, it was helpful to her to have already established credit in her own name...a plus on lease applications as well. They've increased her limit over the years and I suspect she can charge airline tickets, a hotel room, etc., if she needs to, all on her own.</p>

<p>Yay. Thank you very much. S&P, I live in the city, so I'll be taking the Peterpan bus. I DO plan on paying with credit card though (I like the idea of using plastic instead of carrying a lot of cash around). I figure that a credit card would be better, all for terms of credit rating and such.</p>

<p>So, would you all say that a joint account would be better than an individual account? I was thinking of having my own credit card, but then have an emergency card with a bigger limit that is a joint card with my parent's account. </p>

<p>Thank you for all the responses!</p>

<p>It's really hard (especially with the new credit card rules) for students to get cards with high limits (if you can get something even $1,000 limit, that would be a feat). Having an emergency card might be good, but if it's for major expensive emergencies then you would need to think about getting added to a parent's account. That's up to you and your parents to decide if you really need that, I think it's probably unlikely at least for the first couple years (might be more useful when you're studying abroad, where expensive emergencies with no help/no time to call your parents for their credit card number are more likely to arise).</p>

<p>MM, because Murphy is powerful, I would just have you added to one of your parents credit card accounts. I <em>don't</em> think it's a good idea to have a joint checking account with your parents. That can really clutter things up on a credit report.</p>

<p>It goes without saying, that you negotiate ground rules with your parents for usage of same.</p>

<p>I would advise that you bend over backwards to use credit cards for routine things like off-campus meals, snacks, coffee. Save it for Significant Expenditures. Otherwise, you can get a false sense of security about your routine budget and suddenly are carrying a high credit card balance that's a pain to pay down.</p>

<p>If you have even a part-time job, you can often get a credit card attached to a college student bank account. We wanted my daughter to establish credit before she left college and to learn how to pay her bill online, month after month. Her Visa card is in her name only, with a $500 limit. It came in handy when she had to buy bus and train tickets to interview for graduate school (sometimes she had to pay and wait several weeks for reimbursement) and for paying for the applications, although I suspect she used her debit card more for the last. </p>

<p>If you work only during the summer (and not during the school year), apply for the credit card when you are employed. They don't care whether you are working or not once you get the card -- as long as you make your payments.</p>

<p>One addition to TD's post: always pay your credit card in full every month. This way, you won't be tempted to overspend, at least not for more than one month.</p>

<p>MWFN, from what I understand about credit scoring, paying off in full every month doesn't help you that much. Making a purchase and then paying it off in three months does the best job of building a credit score. </p>

<p>Now, once you're established, it's a different matter. We mostly pay off in full. Example of an exception: had to get a new dishwasher, got a "no interest" deal from Sears, are paying that down at $100 a month to make sure it's payed off before the date where interest would kick in. (Because if it kicks in, they charge you all the "free" deferred interest you had been saving.)</p>

<p>We've always paid our credit cards in full, and we have excellent credit. I suspect that the above may be a myth generated by the credit card companies who want that extra interest. :)</p>

<p>Wow, great tips and responses! Thank you all so much.</p>

<p>I do plan on working this summer, so I suppose that would be a great time to apply for a credit card. Does the bank really matter? For Smith, I want to open a checking/savings account with TD (or BankNorth, same thing). Should I open a credit card account in TD as well, or go to a different bank like Chase, who is doing a promo where they give you $100 for opening up an account? </p>

<p>Also, since I'm opening my own account, I know that if you apply for FinAid, the student's assets count for a great deal more than the parent's asset. How much should I really keep in my account in order to avoid a huge peak in FinAid? My parents were thinking somewhere around $500 in a checking account, a $500 credit card and to maybe hold off on the savings account in order to avoid having to report the additional assets to Smith (and paying more towards tuition).</p>

<p>TD & MWFN: I would definitely pay off in full every month. That's what my parents do now and I like the idea of not going crazy every month worrying about interest rates and whatnot. I do understand the exception of the Sears deal, however.</p>

<p>Managing finances. SO exciting! :)</p>

<p>If you're going to open an account with TD, then I would just wait and get the credit card from there. However, if you want to get a credit card from an outside company, then I would apply while you have a summer job where you can report more earnings than you will make at Smith so you will look like a better credit risk to an outside company. Remember to only apply for cards that are marketed for "building credit" or "students" or "First time cards", because you will probably get turned down for any of the other cards that require better credit. </p>

<p>I doubt that having a savings or a checking account will affect your financial aid much one way or the other unless you're going to be putting several thousands of dollars in it (and if this is for earnings from your sumemr job and your campus jobs, it's unlikely you'll accumulate that much. If you can even keep a level of $500 in it for a whole semester, that would be something). And having a savings account to help you more easily set aside money for trips or big purchases can be an asset.</p>

<p>TD will offer you a $500 credit card, subject to approval, when you open your student account.</p>

<p>MM, do re-think not paying off a every month for a "major" purchase, say something of $100-$200. Have the money there but take 3-4 months to pay it off. For credit scoring purposes, paying off in full every month doesn't count as "using credit." Weird but true. We have very few cards and we usually pay them in full every month but we've had balances in the past, have a mortgage, a car payment, etc., and thus have well-established credit. As a newbie, you're in a different category. (A paid-in-full AmEx bill may not be happiness but it helps.)</p>

<p>We got a CC & got cards for our kids. It has a $3000 limit, so they can use it for plane tickets, car problems or whatever happens unexpectedly. IF they charge in any circumstance, they need to let us know or we told them we'd contest the charge and NOT pay. We have never had problems with them running up charges & it gives us all peace of mind that they will never be stranded without funds & need to get home or somewhere safe.</p>

<p>I'm under the impression that your ratio of used credit to available credit is what is most important, so if you qualify for a lot of credit but pay off your credit card every month you're better off than if you only pay off a portion of the balance. However, FICO is very quiet about how credit scores are computed. The most important thing is to make a monthly payment, more than the minimum and on time. </p>

<p>I have excellent credit. I didn't get a card in my own name until a year and a half post-Smith (my senior year of college I was added as an authorized user on my dad's card - this is where much of my excellent credit comes from! It looks like I've had a credit card since he opened the account in 1995) and I never had a problem. I even managed to check into hotel rooms with my debit card when I arrived hours earlier than the rest of the family, but only under the hotel's promise that if my parents didn't switch the card when they arrived the whole stay would be charged to my debit card.</p>

<p>Percentage of credit used compared to credit available is another factor in credit scoring, yes. </p>

<p>My day job is that of real estate agent and I work with clients and lenders all the time about issues that affect their credit rating. I'm not quite as totally immersed in the subject as I am college search and application, but....</p>

<p>I am a committed proponent of fiscally educating the younger generation. We have family discussions about money management.</p>

<p>I thought each of my kids should be equipped with a credit card once they were driving, so they could handle any emergency expenses. D (Smith '06) got a special "youth" credit card at 16. It had an initial $500 credit limit and a parent had access to the statements, etc. Once she was out of college I had myself removed from the account. She has been conscientious about handling her credit and pays her bills in full each month.</p>

<p>S was resistant to getting a credit card in high school. He had a checking account (for automatic deposit of his paychecks) with a debit card and felt he was fine with that, as he could use the debit card for credit if he ever needed to. But now he, a rising college junior, is considering a program in Egypt and I thought he should make sure to have a credit card for that situation. I suggested he get it this summer and put some charges on it and pay them off so he would have a good record before going abroad. </p>

<p>We googled "good credit cards for college students" and got several leads, which he checked out. He applied online for one (on his own record -- no parent info given) and got approved for a no-fee card that awards points. He was given a $1,500 credit limit. (He has worked at a summer job for three years so perhaps that helped. Plus he did have the other bank account.)</p>

<p>I had a session with him in which I showed him my most recent credit card bill which was for around $3,000. (Our replacement garage door was on it.) I showed him the section where it explains how long it would take, and how much interest would be paid, if we paid the minimum each month. Then I showed him the part which provides info on the total in fees and interest we have paid so far in 2010 (zero for both). I stressed that this is the way to handle credit well -- use it for convenience, building a credit rating, etc. but do NOT let it cost you. I am confident that he will be as responsible as his sister has been. </p>

<p>He is going away with my husband on a mini trip soon and we suggested he put the hotel, etc. on his credit card and we parents will pay the bill when it arrives, just to get some activity on it.</p>