So I know that Americans make a big deal out of "credit scores" and I was just wondering, since I'm now 18, should I take out a credit card. Basically, I wouldn't be using it at all, but it might get me better rates when I actually want to use a credit card later in life. Or would it not? My questions: is there any negative points to taking out a credit card that I don't intend to use? Are they easy to cancel later on? Will this do anything at all (positive or negative) for my credit rating? Thanks in advance, Pedro
Having a credit card has its pros and cons. Although it will increase your available credit and reduce the percentage of debt you have it can also be a bad thing because some creditors will see that you require credit and hence do not have the money (in simple terms). However, having a credit card and not using it means that some creditors see you as not financially active and this can have a negative impact if you want a loan/mortage as you have no experience in borrowing. If you have a credit card that you use but pay off the balance each month you are a bad customer because the credit card company are not making any money out of you. Again creditors may charge a higher interest rate to "recover" the potential fact that you may not have any arrears or late payments. Its not all about credit score and in reality everything will be in the favour of the creditors. Whatever you do it may be in your favour and it may not. To keep it in the balance take out a credit card with a small limit (say £500) and pay most of it off every month but leave a bit for the next month (occuring some interest so it will cost you). However credit card companies will often increase your limit and you may be tempted to use it which will give you debt so if you do get one ensure that the company do not increase the limit. Having a card with a small limit is a good idea but it is very important to be self disciplined. If you are not then do not get one. EDIT: moneysupermarket.com/c/news-and-community/ has lots and lots of information about these things, it is a great place!
I have a credit card and (at least in the states right now) I pay off my debt and have no worries. The bit with the higher interest rate only applies to that card and if you have any debt on it. My conservative spending on the CC has actually allowed me to get VERY good rates for my home mortgage loan and house insurance. To me the benefits outweigh the costs. I would get one with a small limit (500), try to get it through your bank if possible, pay it off each month or almost pay it off each month and when you need credit later in life, reap the rewards.
