Earning our stripes in credit

Credit cards are a lot like fire. They can be very useful, and there is a lot of modern life that has been simplified with their ready access, but there are definitely stories of people getting burned as they learn to use their credit cards. Our blog team was talking about how we got smarter about credit, and we thought some of the lessons we learned were worth sharing. For instance:

One day while walking through the quad on campus, I came across a table where a few folks were offering free pizza for signing up for a credit card.  I was probably 19 years old and a starving student, so free pizza was a major appeal. They had other offers too, so I signed up a few times.

A few weeks later, I had 4 open accounts for credit cards that I did not need! This was one of my first lessons in credit: Only have as many credit cards as you need.

Today, I have a really neat opportunity to teach young people the basics of credit. I can share this example to students through a month-long campaign Wells Fargo participates in called “Get Smart About Credit,” sponsored by the American Bankers Association.

Wells Fargo has a free financial education program called Hands on Banking®, and each October, volunteers from across the bank use the Hands on Banking program to volunteer their time and teach credit workshops at schools across the nation. I love these opportunities to help educate college students about credit scores, credit cards, and why it all matters.

Do you want to have your own apartment? Or maybe buy a nice car? How about an easy time applying for credit when you need it? For all these things, you need to establish and take good care of your credit. You can also learn more about credit by going to www.handsonbanking.org and selecting the Young Adults Program. Explore the All About Credit section to learn more!

It is a shame but, like many students, I had to learn about credit the hard way; namely damaging it and then working hard to fix it. So, here is what I learned from my experience:

  • It is important to have a credit card for emergencies and other things. As a student, you may run into certain situations where you will need a credit card and there is nothing wrong with having one for that. Remember that you have to make the minimum payment on each balance you have, which could add up very quickly if you are using more cards than you can track. Try to carry your credit card in a place that is not in plain sight to lower the temptation of using it, like the place you store your health insurance in your wallet. You will have it with you but won’t see it every time you open your wallet.
  • If you can only afford to make the minimum payment on a credit card you probably can’t afford it. If you make only the minimum payment, it can take you years or even decades to pay down the card.
  • Be careful with store cards. Once you get a credit card, offers for more cards will start flowing in; and when you are checking out and the cashier asks if you want to apply to save an additional 20%, do some quick assessments. Store cards often come with perks like additional discounts and promotions, but they may also have higher rates, lower limits and—most importantly—are another temptation to spend. (See the previous point) If this is a place where you regularly spend money and stay within your budget, then a card might be helpful. If having the card might tempt you to spend more money than you should, then steer clear.

Credit and credit cards are useful if managed correctly, but if not managed correctly can quickly get out of control.

I always knew that credit is important because everyone always says it is. But it wasn’t until I bought my first home and all the stuff that comes after owning a home that I realized how important credit really is. My credit history—from my student loan payments and normal credit card use—impacted how much I could borrow and at what rate, and it impacted my ability to borrow money for unforeseen expenses. I learned that it is important to understand credit and how your actions—or lack thereof—can impact your ability to borrow.

I am lucky in that I work in a place where I have a lot of “human resources” to go to for expert advice.  I learned about the report of my credit history and my credit score, and how improving them could make a big difference in my mortgage payments. Outside of that, it’s also important to do your own research and arm yourself with the knowledge of what credit means and how to maintain it.

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