When I was in my early 20s, I had reservations about getting my first credit card. I didn’t know much about building credit or why it would be useful to me unless I was planning on making a purchase like a house or a car.
I only bought things that I could afford to pay with cash. Not having a credit card wasn’t a problem for me since I had other lines of credit open that kept my score at a decent level (i.e. my student loans!).
Looking back, I wish I had started my credit card journey sooner. Here are 5 reasons to get a credit card in your 20s:
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1. Build Credit History
Increase your credit score
To build a strong credit score (720+) you need to build credit history. For most people, the easiest way to build credit will be though holding a credit card. Having a credit card shows how you handle money over long periods of time. The more responsible you are with money, the more confident lenders will feel about giving you more credit.
Age of credit is important
The age of your credit makes up 15% of your overall score. The earlier you start, the better off you will be when it comes to making large purchases such as buying a car or a home.
2. Learn Good Habits
Build discipline
If you are able to build discipline by paying off your card each month and only charge what you can afford, you can use those skills in other areas of your life. Thirty percent of a person’s credit score is based on their overall outstanding debt. This is where most people run into issues. Lenders want to see what percentage of available credit a person will utilize. Using over 30% of available credit is often seen as high risk. This is why it is important to be mindful of how much you are spending on your credit card even if you are paying it off regularly.
Keep your utilization low
I try to keep my utilization under 10% as a personal rule of thumb. Maintaining a low credit utilization is also more obtainable by having multiple cards. Since your credit utilization is based on all of your available credit lines, the more credit you have, the easier it is to keep your utilization low. This is why the myth of having a lot of credit cards lowers your score is simply not true. Having more credit cards with low utilization can actually help you get a higher score!
How to use multiple credit cards
Also, if you have different credit cards for different purposes (gas, groceries, dining, travel, etc.) it can be a great way to categorize your spending and track how you spend your money each month! This is a simple to track how your spending aligns with your budget.
3. Security
Don’t put your money at risk
Paying for purchases via a credit card puts your information and money at less risk than paying with a debit card. When you use a debit card for a purchase, you are giving someone direct access to your funds.
Let the bank handle it
If your account is compromised you may have to go through a lot of hoops to get your money back. If your credit card is used without your authorization, it isn’t your money that is being stolen, it’s the banks. The bank will work on your behalf to resolve the issue because that is their money that was stolen.
4. Benefits
Great savings and perks
There are so many benefits that come with having a credit card. Being able to take advantage of great benefits on spending that you would do anyway is a great perk to holding a credit card. Sign-up bonuses, cash back rewards, points for travel, discounts, and free credit monitoring are all examples of credit card benefits.
If I realized all the money I could save and earn by having a credit card, I would have gotten one much sooner! Receiving rewards through my credit card each time I make a purchase is just another way that my money is working for me.
Safety Net
Also, it never hurts to have lines of credit available if you are ever in need of them. While having an emergency fund should be your first line of defence a credit card can also get you through hard times. It is better to have this lined up in advance. Circumstances may change where getting access to credit may be more difficult. This could be due to personal reasons or economic conditions. Be ready for anything!
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5. Have money to Make Money
Make your money work for you
Having credit at your disposal is a powerful thing when used the right way. Using a credit card is a way to leverage the money that you already have access to. Charging expenses to a credit card as opposed to a debit card gives you more flexibility when making purchases. If you know you have cash flow coming in, having a credit card allows you to make purchases without touching your cash. If you are simply working with cash, what you have right now is all you have. For example, it’s possible to have cash in a high yield savings account earning interest then pay your credit card off at the end of the month with that cash. This is a simple example of how credit can be a tool that you can use to create more wealth for yourself.
Credit ≠ Debt
Sometimes people fear credit because of the potential damage that it can cause to their life. A common example is that credit is like fire. Fire can cause havoc and destruction but it can also be used for cooking, warmth, and survival. Similar to fire, with credit you simply need to learn how to manage and control it.
How to Get Started
Secured Credit Cards
For anyone that is just getting started building credit, secured cards are a great way to go. A secured card will allow someone to put money down towards the card and that amount will be the credit limit. Once a person have built credit with a secured card, they can then transition to an unsecured credit card. Unsecured credit cards provide higher credit limits and more card holder benefits.
Unsecured Credit Cards
With unsecured cards, it is important to be strategic regarding the type of card you choose to get. All of the benefits of having a card go out the window if you need to change your spending habits to make the card work for your situation. If you can’t afford the spending requirement for a signing bonus, you may want to hold off on getting it until you can afford the spend and annual fee.
Get cards you plan to keep
It is important to get cards that you can see yourself holding indefinitely when you are first starting out since they will be your oldest credit lines. If you do decide to get a premium card, see what downgrade paths are available so that you can keep the line of credit open but on a cheaper card. This is a great benefit since life circumstances change and not all credit cards will work for our financial needs forever.
Disclaimer: The content in this post is my opinion and should not be considered financial advice. I am not a financial expert or advisor. This content is for informational and educational purposes. For more details please visit the Disclaimer Page.
