Establishing Credit - Best Credit Card for a college student?

[Chemboss]

lol - nh

If you would like to go in debt and make payments to get a nice high credit score, be my guest.

If you remain out of debt and spend only the money you have (a side affect being the dreaded zero credit score) you can build some real wealth.

[FlyWf]

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Like I said my FICO score is zero - my insurance premiums are low, I would have no problem renting an apartment or house, I have a cell phone with the same rate of everyone else. If I went to get a mortgage most banks would deny me because they only use FICO score. (I don't get mortgages I pay cash, another key to becoming wealthy). You can get a mortgage without a credit score - it is called manual underwriting."

No one has a FICO of zero. If you've never had a tradeline you are unscored, you don't have a zero. Companies will treat you like someone who has a score of ~500 if you aren't scorable. This is the sort of thing that makes me believe you don't know what you are talking about.

Your insurance premiums would probably be lower with a good credit score, you will have an easier time renting an apartment(have to provide less documentation), you have an easier time getting a cell phone without a deposit, you have an easier time getting a mortgage and you pay a lower interest rate. None of the things you said were actually a response to what I said.

"People who use credit cards spend significantly more on purchases"

Does Discover come to your house and make you buy 30-50% more(than who? Cite one of those studies, please. I can think of like 14 significant issues with such a study)? Credit cards do not magically remove financial discipline, which is important even if you're living a cash-only existance.

"Let me ask you this: Do you believe a car is a good investment? I hear this all the time."

I really don't think anyone has ever said that a car was a good investment unless they were using "investment" in a very general sense(i.e. "A car would be a good investment for you so you could get a better job.").

OP definitely needs to consider the source. You honestly do not know what you are talking about and you would be wise to reevaluate your personal fiscal situation.

[emon87]

Here is a short list of why having a good credit score is important.
[*] Qualifies you for a better rate on a mortgage. By shaving off even just 1 or 2% from your interest rate, you can save tens of thousands on your overall cost.
[*] Allows you to get a mortgage at all. With the sub-prime explostion, you're going to actually need a decent score to qualify.
[*] Allows you to get a lower car loan. (Although the argument could be made that you are better off not buying a car that you need a loan for, but that can be argued against as you might qualify for a low enough rate to where you could make more via investment, etc).
[*] Allows you to get a larger business loan (or get one at all). If you want to start your own business, you're going to need capital.
[*] FICO scores are often used to approve people for a number of services such as apartment renting without dealing with paying large cash deposits upfront, allowing you to earn interest on your money for longer.
[*] Credit cards come with rewards and don't cost anything if you pay them off each month.
[*] With a good score you can get a lot of 0% balance transfer offers which you can take advantage of via arbitrage to earn potentially thousands each year.

here is some GOOD credit info

I would also be interested to see some citation for the study you are referencing.


None of the things I mentioned involve going into any debt.

[Thremp]

Chemboss,

Perhaps good credit would be important if maybe say... One day... You want a loan to leverage an investment. God forbid.

[Chemboss]

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No one has a FICO of zero. If you've never had a tradeline you are unscored, you don't have a zero. Companies will treat you like someone who has a score of ~500 if you aren't scorable. This is the sort of thing that makes me believe you don't know what you are talking about.

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You cannot be scored if you have not had any debt in over 10 year and no open accounts as I have. My credit report is blank. I believe the actual lowest number is 300, but because I have no credit history – there is nothing to score. That is why I say I have a zero.

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Your insurance premiums would probably be lower with a good credit score, you will have an easier time renting an apartment(have to provide less documentation), you have an easier time getting a cell phone without a deposit, you have an easier time getting a mortgage and you pay a lower interest rate. None of the things you said were actually a response to what I said.

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Credit score has only a negative affect on insurance premiums if you have late payments, etc. I get the best rates available for all types of insurance (life, lt disability, health, car, etc.) with my blank (zero) credit score.
I would agree with you that a mortgage is much easier to get if you have a nice 900 credit score. Like I said above, if I went into an average bank to get a mortgage – and I was evaluated solely on FICO – I would be turned down for almost any amount. I have to find banks willing to do manual underwriting. I paid cash for my last house purchase, but most banks would not extend me a loan because of my lack of FICO, lol.
When we do credit checks for renters we only use credit score as a gage for responsibility. It is all in the details. If you have enough income to make the payments - you'll get something. Maybe we do it differently than others at my properties.
I really have no idea about cell phone. I would guess they want to make sure you stay for the duration of the contract. But I got a cell phone no problem with no credit history.


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Does Discover come to your house and make you buy 30-50% more(than who? Cite one of those studies, please. I can think of like 14 significant issues with such a study)? Credit cards do not magically remove financial discipline, which is important even if you're living a cash-only existance.

[/ QUOTE ]

I agree with your assertion of personal responsibility. I have no doubt that someone could use a credit card their entire life and be very responsible making payments on time. But this is far from common. One late or lost payment and your interest rate will go up - American Express found that a person using Express Pay will spend 20 – 30 % more vs. cash spenders. (link) McDonald’s found that the average sale rose from $4.50 to $7 per sale for plastic versus cash purchases. (link – I don’t think this is where I read it, but this has the same statistic)(Wendy’s found 30% - link )

Bank of America and Citigroup do not make $21 billion in profits each by helping people establish a good credit score. They make that money on late fees and interest on those who spend more money than they have. How do you explain the average American having 8k in credit card debt. It seems most people are not responsible.

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I really don't think anyone has ever said that a car was a good investment unless they were using "investment" in a very general sense(i.e. "A car would be a good investment for you so you could get a better job.").

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I would honestly reconsider my skills and abilities if I were relying on a car to get me a job.

[Chemboss]

[ QUOTE ]
Here is a short list of why having a good credit score is important.

Qualifies you for a better rate on a mortgage. By shaving off even just 1 or 2% from your interest rate, you can save tens of thousands on your overall cost.

[/ QUOTE ]

Why not eliminate the entire loan and save yourself 6-8 %

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Allows you to get a mortgage at all. With the sub-prime explostion, you're going to actually need a decent score to qualify.

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Most local banks I go to I could buy the branch. They would have laughed at me trying figure out what to do with my credit score if I had applied for a loan.

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Allows you to get a lower car loan. (Although the argument could be made that you are better off not buying a car that you need a loan for, but that can be argued against as you might qualify for a low enough rate to where you could make more via investment, etc).

[/ QUOTE ]

I think this is the most important means to build wealth – not loaning money for a car. Most new cars will lose 50 – 70% of their value in the first 5 years. You would be hard pressed to make that back in any type of investment.

On a $30k new vehicle a 4 year loan would be $625 per month at 0 %. The car would likely depreciate to $15k in 4 years.

If you took the $30k you would have put towards the car into an account making 12.0% interest (this is the 5yr average for a decent growth mutual fund) you will only make ~ $11k in interest over the life of the loan. Subtract capital gains tax. And you are well short of this being a wise decision (~ $7k). You would have to average 17.5% to break even via investments.

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None of the things I mentioned involve going into any debt.

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I’m not sure what you mean – mortgage, car loan, business loan, and credit cards all involve debt.


I admit there are different ways of thinking. I tend to behave like millionaires behave to get to where millionaires are.

[Dazarath]

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I would be careful of placing too much importance on credit rating. The only way to have a good one is by continually borrowing and staying in debt.

Your credit rating is really on a measure of how much you love debt.

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This is where you're wrong and why other posters have suggested that no one listen to your posts. You can sign up for a credit card with no annual fee, never use it, and build credit that way. The credit card companies don't report how much you use it, just whether or not you paid on time. Not using it for a month and not paying anything counts as a "good" month.

I don't understand why people say credit cards will ruin kids. It's the irresponsibility of the kids that will ruin them. For the OP, if he's fine as he is not using credit cards, he always has the option to sign up for a student card and then store it at home after he receives it. This way, he can build credit without the possibility of getting into massive credit card debt. But just the action of getting a credit card won't doom anyone.

[crovax4444]

I think Chemboss is saying that people stress about their FICO scores too much. However, I believe he doesn't stress about it enough. While you can do many things without having a high FICO, not having one is an unnecessary limitation to your finances.

A car is not a good investment because it depreciates. Things like houses that typically appreciate are good investments.

I'm not an expert on whether you can live with a 0 FICO, but I suppose if you lived completely off the grid and got paid in cash, never reported your taxes, never opened a bank account, you could live without a FICO score.

PS. Though it may be good to only spend money you have, it is even better to use other people's money to make money, which you need a FICO for.

Crovax

[Chemboss]

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However, I believe he doesn't stress about it enough. While you can do many things without having a high FICO, not having one is an unnecessary limitation to your finances.

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I don't stress about it because I don't borrow money.

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I'm not an expert on whether you can live with a 0 FICO, but I suppose if you lived completely off the grid and got paid in cash, never reported your taxes, never opened a bank account, you could live without a FICO score.

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Taxes and bank accounts have no bearing on FICO score, unless you don't pay them - then they will most certainly have a negative impact.

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PS. Though it may be good to only spend money you have, it is even better to use other people's money to make money, which you need a FICO for.

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So you can pay 5-6% of your earnings for the privilege of borrowing. I would rather use my own and keep the extra 5% for myself!

[ChromePony]

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Why not eliminate the entire loan and save yourself 6-8 %

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Because not everyone has enough cash on hand to buy a house [img]/images/graemlins/confused.gif[/img]

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I admit there are different ways of thinking. I tend to behave like millionaires behave to get to where millionaires are.

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It sounds like you're doing just fine without a credit score and that is great. I would say that you're right, it certainly isnt necessary to have one and one can still achieve wealth without it. However, as has been previously stated, a good credit score can only help you financially, so telling students with little to no money or income that obtaining a high credit score is a bad thing is just really really horrible advice.

Anyone who has a credit card needs to be responsible, and you can certainly get you into trouble if you arent. However, I believe the point of this post is to discuss how to responsibly build a good credit score, and having a credit card is an excellent way to do this.