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Carrying the responsibility of a credit card in your wallet isn't a decision to take lightly. Credit cards can be a crucial component in building credit and may carry additional perks like cash rewards and points towards flights, but they can also act as an entry point into overspending, debt and high interest.
Once you're in that hole, digging your way out can be difficult. Research shows that younger generations are becoming more likely to avoid credit cards altogether, rather than risk mismanaging a credit card and spiraling into debt.
But because credit cards offer protection, convenience and other benefits, it's usually a smart idea to open at least one account. So, how do you know whether opening a line of credit is likely to help or hurt you financially? It all depends on your personal financial circumstances, goals and how well you can manage a credit card.
Why Should I Get a Credit Card?
Using a credit card responsibly is one of the best ways to build a strong credit history—something that can help you score the most favorable rates on big loans for cars and mortgages, pay less for insurance, get access to more housing options and more. In other words, building good credit with the help of a credit card can save you a lot of money over time.
Credit cards can benefit you in a range of other ways as well:
- Simplify payments. You may already pay for monthly expenses like utilities, streaming services, phone bills and more. Charging these recurring payments directly to your credit card can help you build credit without lifting a finger by letting your bills work for you. Just be sure to pay off your balance in full each month to avoid accruing interest. You can set up auto payments to avoid paying late.
- Finance purchases. It's best to use your credit card to make purchases you can pay off in full before the end of the grace period, unless you're taking advantage of an intro 0% APR period. In that case, make sure you pay off your balance before the promotional rate expires.
- Earn rewards. Rewards credit cards offer perks like cash back on purchases, airline miles, hotel points and more. As long as you pay off your balance each month, using a rewards credit card as a payment method can provide extra value.
- Shield yourself from fraud. Credit cards offer better fraud protection than debit cards because federal law limits your liability to $50 per credit card if your card information is lost or stolen. It can be more challenging to recoup funds that have already been withdrawn from your bank account if a thief gets their hands on your debit card info.
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When Should I Get a Credit Card?
The best time to get a credit card is when you have enough money to pay off any charges you might incur—and are responsible enough to pay your bills on time every month. Times when it may be a good idea to get a credit card include:
- You're entering adulthood. A credit card may be an excellent place to start for those turning 18 and ready to enter the adult world of building and monitoring credit. You'll need provable, independent income to qualify if you're under the age of 21.
- You already manage one credit card responsibly, and you're ready to up your credit-building game with another. There's no one-size-fits-all answer to how many credit cards you should have, but opening an additional card may benefit those with savvy money management skills by lowering your credit utilization and maximizing your rewards. But tread carefully—more credit presents more risk of overspending.
- You have good credit. If your credit score is above 700, you may qualify for a credit card with cash back rewards, an intro bonus, points and more.
- You want to build or rebuild credit. On the other hand, if you have low credit or no credit history, responsible credit card use may be a smart way to increase your credit score.
- You're already comfortable sticking to a budget and can afford your monthly expenses. You should only open up a line of credit if you're confident you can stick to a budget and pay the balance off each month. If you're short on cash and struggling to save, getting a credit card is risky business—it may feel like a quick fix when you're low on funds, but adding debt and the interest charges that come with it could hurt your financial situation.
- You're paying off debt. A balance transfer card may help you get out of debt faster and avoid losing money to interest. Keep in mind that balance transfer cards usually require a good or excellent credit score.
How Can I Get a Credit Card With No Credit History?
There are options for building a credit history, even if you have a low score or no credit accounts:
- Become an authorized user on another person's credit card. Asking your parents or another person close to you to add you to their account can help you build credit and provide a smooth transition into the responsibility of being a card-carrying borrower. Only consider this if you know the person uses their card responsibly and keeps the balance low.
- Get a card designed specifically for students. This may help you build your credit while in school and enable you to graduate with a good credit score and a financial head start.
- Apply for a secured credit card. Those with little or no credit may qualify for a secured card. You'll put down a refundable cash deposit, usually equal to your line of credit, when you open the account. Other than the deposit, a secured credit card works the same way as a regular card: You make purchases, pay them off at the end of the month and accrue interest if you don't. Falling behind could mean losing your deposit, while establishing a pattern of responsible management may open the door to an unsecured card. At that point, the card issuer may refund your deposit.
- Try a starter credit card. If you've never had a credit card before, you may qualify for a credit card designed for credit newbies. These cards don't usually carry perks, but they may offer just what you need: a small line of credit and low or no annual fees.
Potential Downsides of Getting a Credit Card
While there are numerous benefits linked to credit cards, they can hurt your credit and lead to debt if mismanaged or used for overspending. Some common pitfalls include:
- Overspending and incurring debt. Treating a credit card like it's free money is a recipe for potential financial ruin. If you spend more on a credit card than you can afford to pay down within the grace period, you may enter a steep decline into debt. Interest rates on credit cards can be as high as 29% or more in some cases, leading to fast-growing balances that become prohibitively expensive to pay down.
- Accruing fees. Annual fees, late payment fees, balance transfer fees, over-limit fees and more can quickly add up. You may be able to avoid many of these fees by managing your credit card responsibly. For example, you can avoid late fees by setting up autopay on your credit card, and you can avoid annual fees by opening a card that doesn't charge them.
- Credit score damage. If you miss a payment or have a high credit utilization, you could end up hurting your credit score rather than helping it. Your card issuer reports your credit utilization and payment activity to credit bureaus each month, which can help your credit score if you're keeping your utilization low and making on-time payments—or damage your score if you're not.
The Bottom Line
Credit cards can be a strong tool for improving your credit score and financing purchases, but they can also hurt your score and lead to debt if not carefully managed.
If you aren't sure whether you're ready for a credit card, there are other ways to build credit that don't carry the same risks to your long-term financial health. For example, Experian Boost®ø lets you receive credit for eligible, on-time utility, cellphone and streaming service payments, potentially resulting in a credit score increase.