The independence of living away from the shelter of your parents makes you feel like you can do anything. You’re in charge. You make the decisions. You wear the pants—or don't wear the pants. It’s all up to you! Guess what else is up to you? Your finances. As boring as it may sound, nothing screams adulthood like financial responsibility.
Howard Dvorkin, CPA and founder of Consolidated Credit, says that because young adults are exploring their newly acquired adult status, the decision to take on an adult responsibility often finds itself in the form of a credit card. “Credit card companies target students because it’s the first real time that they get to make their own decisions without parental guidance,” Dvorkin says.
Find the Right Card
If your first adult decision is applying for a credit card, there are certain steps that should be taken to make sure you find the right card for you. Tami Nealy, an identity theft expert and senior director of corporate communications at LifeLock, suggests actively searching for cards on your own rather than clicking on links sent to you or through mail correspondence. “Research on your own is much safer,” Nealy says. “Understand the risk of filling out forms, especially online. Understand how you got there. Be in the driver’s seat before giving out any of your information.”
When it comes to applying for credit cards online, watch the Website URLs, says Nealy. The site address should move to a secured site indicated by an “s” after “http.”
Another aspect when looking for credit cards is to find rewards for spending. Erik Larson, president and founder of NextAdvisor, an online site offering finance advice, suggests finding credit cards with cash back options. “Use [your card] sparingly,” Larson says. “Look at the cash back rewards. Most cards offer cash back in certain categories like going to movie theaters or theme parks.”
The goal when using your credit card is to spend on necessities and only spend the money if you know you can pay it back.
If young adults are using their credit cards to host a campus kegger or to buy new clothes, they have to make sure they can pay it back. That’s the key to establishing good credit. “If used responsibly, a credit card in college can be extremely helpful in both the short and long run,” Dvorkin says. “When a credit card is used irresponsibly for things like going out and splurging, then the consequences are serious.”
One of the consequences being a bad credit score. Understanding your credit score and how it’s affected by credit cards is something to consider before you swipe that piece of plastic. Larson explains how your credit score works. “A good analogy is that your credit score is a little bit like your GPA. If in your freshman year you get a lot of D’s and C’s, you’ll never get a 4.0 even after raising your grades. Your credit score is the same way,” Larson says. “Most of the negative items stay on there for seven years. If you start out with bad credit, late payments, or default on something, it’s going to take you a long time to get that credit score back up.”
So, if your part-time serving gig can’t pay back the money you spent on that fancy purchase, it’s best to keep the plastic in your pocket.
To ensure that you’re making the right financial decisions when using your credit card, keep an eye on your accounts, don’t just wait for the monthly bill to show up in the mail. Check online or through a mobile app (if it’s available) so you know where you stand on your spending. This will also alleviate any wrongful spending or cases of identity theft. If you notice anything off, contact your credit card provider immediately and get the ball rolling on investigating what went wrong.
Something else to keep an eye on is credit card scams. On your quest for a credit card, scams can come in the form of email, over the phone, and, most recently, through SMS text message saying there has been a mistake made with your account. This is a common tactic used by identity thieves.
“Thieves are getting more clever in their approach to getting your information,” Nealy says. They set themselves up as a company you can trust, they instill fear in you by telling you something went wrong with your account, and then they ask you to confirm personal information to access your account to “fix” the problem. Double-check the source of the so-called account holder to determine if it’s the real deal or not.
Before heading into the land of adulthood, remember that the decisions you make early in your life can trip you up down the road.