February 2018 - EASTERN OREGON PARENT - 7
Teen consumers, here’s your guide to credit cards
By SUZANNE KENNEDY
There I was, a 20-some-
thing sitting in the little
apartment I shared with
two other girls, when the
phone rang. It was a col-
lection agency. Suffice it to
say that it was not a great
conversation and one of
us ended up blubbering
into her pillow.
You see, I had a credit
card. It was my first one
and I’m pretty sure that I
applied for it because they
were offering an amaz-
ing free Frisbee or water
bottle with every applica-
tion. There were tables
all over campus and you
couldn’t escape them. It
wasn’t that I had a huge
balance or anything. I was
in college, had moved
a bunch of times, and
wasn’t always the most re-
sponsible about changing
my address – at least with
the credit card company.
I had made a couple of
purchases a while back,
but hadn’t received a
bill in a long time. In my
20-year-old mind, that meant I had
no balance (of course I hadn’t kept
track of my purchases) and I was
going about my merry way.
To be honest, I’m not really sure
how I even had a credit card. I know
my dad would’ve never co-signed
for me (he is a smart man). In any
case, I learned my lesson.
It’s pretty common for young
people to head off to college with
credit cards now. The key is to use
the cards to build good credit,
not max them out. Here are five
mistakes that often derail a young
person’s credit – and how to avoid
them.
Overspending or underspend-
ing. Spending can become addic-
tive and easy when one doesn’t
pay attention and keep track of
purchases. Shopping can actually
release endorphins that make you
feel happy and boost your im-
mune system. So, yes, it’s basically
good for you until you spend too
much. Look at it this way. Don’t
buy anything that you wouldn’t be
able to pay cash for right at that
moment. Pay off your card every
month. Less common is
underspending. If you
never use your card,
you’re not building your
credit score, which was
one reason you got it in
the first place. The wise
consumer will charge
something small each
month on the card and
pay it off right way.
Not understand-
ing credit and annual
percentage rates. Credit
card companies charge
you money to use their
service. They do this
by charging something
called interest. You
pay a certain percent-
age of the balance you
keep on the card (the
amount you owe); some
cards have a 20 percent
APR (annual percent-
age rate) or more. That
interest builds each day,
based on your balance.
This is how lenders
make money. If you
manage to find a credit
card with a zero percent
APR, usually the rate
will jump after six months or you
can expect to pay a yearly fee. Of
course, this can change as you get
older and establish better credit.
Cash advances. Cash advances
are when you borrow cash from
your credit card. This is a terrible
idea. Interest on cash advances
starts to accrue immediately in-
stead of at the start of your pay-
ment cycle. And there’s usually an
additional fee beyond the regular
rate. It’s like shopping for your
groceries at a mini-mart. It’s conve-
nient, but expensive.
Strategies
Missing payments or only mak-
ing the minimum payment. Did you
know that missing a payment could
cause as much as a 100-point drop
in your credit score? Paying only
the minimum amount could cost
you money and lower your score
at the same time. Imagine you buy
a TV for $200 and only make the
minimum monthly payment. On
average, you’ll end up paying $226
after more than a year. And that’s
only if you don’t buy anything else.
Would you willingly pay an extra
$26 at the checkout counter if you
didn’t have to? Make it a practice to
pay things off as fast as possible.
Having too many credit cards.
This is an easy mistake to make.
So many stores offer a discount on
your purchase if you apply for a
credit card. Sometimes it can add
up to quite a savings. However, you
may not realize that new credit
lines account for about 10 percent
of your credit score. Not a big deal
for older consumers with well-
established credit, but that’s a lot
for newbies to the world of credit.
One credit card is ideal for young
people.
Having a credit card when you’re
young doesn’t have to be scary.
With a little knowledge and respon-
sibility, you can build great credit
and have one less financial hurdle
to overcome later on.
________
Suzanne Kennedy is a former middle
school teacher who lives in Pend-
leton with her husband and four
children.