10 Credit Card Truths You Wish You Could Tell Your Younger Self
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As a teenager, I associated credit cards with adulthood, so naturally I couldn't wait to get my first one. But like so many young adults, I didn't know much about credit management, and I made several costly mistakes in the beginning. The good news is that I woke up and saw the error of my ways before completely ruining my finances, although I didn't come out the other side completely unscathed. Looking back on my early credit years now, however, I know exactly what I did wrong — and here's what I would tell my younger self about credit cards.
1. Don't Apply for Too Many Cards at Once
It wasn't long after my 18th birthday — literally, like days — that credit companies were calling me with the great news that I qualified for their cards. I worked part-time (as much as someone still in high school could), yet every student credit card issuer was eager to give me plastic. So I took the bait, and I applied for one credit card after another, not realizing the danger of applying for too many credit cards. Being young, I didn't know that each inquiry lowered my credit score by a few points, which, if I'm honest here, didn't mean jack to me at the time. I was approved for most of the cards I applied for, which ultimately led to another problem — the temptation to spend. Cause and effect should help you deduce that I learned from an early age that the more available credit you have, the easier it is to get into debt.
2. Only Charge What You Can Afford
As a young adult, I didn't always have money to hang out with my friends or go on group trips. I didn't want to feel left out, so I began using credit as an extension of my income. Biiiig mistake. I think a credit card is an excellent way to build credit as a young adult, but I would definitely advise my younger self to set a budget. I'd take a look at my finances and determine what I could realistically afford to spend each month, and then stick with this limit. I could have saved myself a lot of financial heartache had I been as wise back then.
3. Pay Off Balances in Full
If I could rewind time, I would definitely pay off balances in full every month, which also goes hand-in-hand with only charging what I could afford. Now that I'm older, I realize that paying off balances is a surefire way to never get into deep credit card trouble. It's easy to accumulate credit card debt, but not as easy to pay it off.
Of course, even if we pay off a card in full, a large unexpected expense might result in carrying a balance. There were times when I had to use a credit card for an emergency car repair and then carry the balance from month to month. Another mistake I made was only paying my minimums, even at times when I could afford to pay more. I recall spending $500 for new brakes and rotors for my car, yet it took more than two years to pay off the balance because I was only making $20 minimum payments. (See also: How a Smart Balance Transfer Will Help Pay Off Your Debt)
4. Never Pay Late
Early on, I was more than just late on payments — I ignored them altogether because I was young, dumb, and incredibly broke. In hindsight, I would tell my younger self to track down due dates, or better yet, pay credit card statements as soon as they come in the mail to avoid a late arrival, which is what I do today. A $35 late fee increases the amount owed and results in additional interest. To put this in perspective, 10 late fees a year equals an extra $350 in credit card fees.
5. Avoid Cash Advances
I relied heavily on cash advances from my credit cards as a college student, especially during my freshman year. I didn't go crazy or borrow thousands of dollars, but I would take $20 or $50 here and there to tide me over until payday. I didn't realize until later that I paid a cash advance fee each time I tapped the ATM. It was also a shock to learn that cash advances carried a higher interest rate than standard purchases. Between the fee and the higher interest rate, it took longer to pay off the card.
6. Don't Let Friends Borrow Your Credit Card
I made the mistake of lending my credit card to a friend. He had permission to purchase one item, but used the card for much more. The card was in his possession for less than a week, yet there were charges for restaurants, movies, fuel — he even had the audacity to purchase a video game in my name. He eventually paid me back, even though it took nearly two months.
7. Don't Exceed Your Credit Limit
Because of new credit card rules, a credit card issuer can only charge an over-the-limit fee if you opt-in for this fee. If you don't opt-in, any transaction over your limit will be declined. Unfortunately, this wasn't the case in the late '90s when I applied for my first credit card. If I could go back in time, I would tell my younger self to carefully monitor spending and don't go over a credit card's limit. I made this mistake and was hit with an over-the-limit fee plus additional interest. I exceeded the limit by more than $100, and because I didn't have extra money to bring my balance below the limit, I paid the over-the-limit fee for three months.
8. Know What You're Paying
Using a credit card can be expensive if you choose a random card and you don't know what you're paying. Before applying for any credit card, I wish I would have compared interest rates, annual fees, cash advance fees, late fees, etc. Credit card fees add up quickly and increase the cost of using credit.
9. Check Your Credit Score
I didn't get serious about credit monitoring until my mid-20s. When I finally checked my credit report for the first time, there were a couple of mistakes. Mostly minor, but there was one major error dragging down my credit score. Knowing what I know now, I would make a point to check my credit report at least once a year and not rely on my credit card companies to detect fraudulent activity. (See also: Credit Cards that Offer Free Credit Scores)
10. Make Sure the Bank Reports to the Bureaus
Despite the mistakes I've made, I'm happy that I established credit in my late teens. I was able to learn from my mistakes and repair my credit before financing a car or buying a house. But with regard to applying for credit, I'd also encourage my younger self to get a credit card from a bank that regularly reports activity to the bureaus. One of my earlier cards didn't report my credit activity, which meant that my history of timely payments didn't show up on my credit file, nor help my credit score.
We all have credit card horror stories. What are some of yours? What can you tell your younger self about credit cards now that you're an adult?
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