You probably wouldn't realize it from the way credit card companies market to consumers willy-nilly, but there are big differences between the "ideal" credit card for a college grad and those marketed toward his or her grandparents. According to experts WalletPop interviewed by phone recently, you really need to keep in mind what stage of life you're in (young adult, married, senior and so on) when you shop for a credit card.
We consulted with Curtis Arnold, founder of CardRatings.com, and Gerri Detweiler, credit adviser for Credit.com, to ask them for advice and strategies consumers at seven critical life stages should use when they consider applying for a credit card.
Do you have the right card for your life stage? Read on. You may be surprised at what you learn.
Young adults: This group used to be a hot market for card issuers, but the CARD Act delivered some significant restrictions on marketing to college students and people under the age of 21. While ridding campuses of armies of credit card salesmen is a good move, in general, it also means credit can be tougher for younger people to acquire. If you're under 21, you can still get a credit card -- provided you have verifiable income to show the issuer -- but the limit is likely to be very low, and the terms probably won't be the greatest.
Arnold advises young adults to know their credit score, and to be honest with themselves about how good their credit is when applying (since being turned down for credit doesn't do your credit score any favors). If you have a score between 675 and 730, which is about as high as someone with a short credit history can expect to have, shoot for what Arnold calls "near prime" cards -- those that specify good but not great credit as a requirement. No income? Then establishing credit will be an uphill battle; our experts suggested a parent adding a responsible teen as an authorized user.
If this isn't an option, the final way for a young person to build credit is to get a secured card. It's not cheap -- you have to provide the money you're using yourself, usually a few hundred bucks, and that amount is your credit limit. It's similar to prepaid debit cards with one big difference: Secured cards can help you build your credit. CardRating's Arnold says that while these cards come with annual fees, you can find one with a few of just $25 or $30 per year; there's no reason to pay the up to $80 he's seen some issuers charge. Also, be sure to read the fine print about other fees to make sure you're not getting suckered into a "fee harvesting" card that exists less to help you build credit and more to nickel and dime you to death.
One final word of advice: Think long and hard about your first "real" (i.e. not a retail or secured) card. "Pick a card you think you want to stick with for a while," Detweiler advises, "since you want to keep your oldest card open and active for as long as possible."
Singles -- under 40: When it comes to choosing a card, says Detweiler, "Be brutally honest with yourself about how you're going to use the card. If you're not at a point in your life yet where you're disciplined about money and have an emergency fund, you should assume you'll be paying interest from time to time." To that end, she recommends shopping for a card based on its regular -- not teaser -- APR rather than the rewards you can earn or other factors.
Chances are also good, you're probably still building your credit history, so Arnold says a good strategy is to apply for a retail card or a gas card. These aren't the best cards out there -- their low limits mean you can look close to being "maxed out" after even a modest purchase, and their APRs tend to be sky-high -- but it's a good lower rung to grab on your climb up the credit ladder. If your early career sticks you with a lot of driving or a long commute, a gas card could be a good option, since they typically offer better rewards-earning potential than whatever generic rewards card you probably could acquire at this point.
Young families: This is the point in your life when you want to zero in on rewards for commonly purchased items, since your spending is likely to zoom beyond what it was in your one- or two-person household years. If this is the stage you're in, says Arnold, "Find a card that offers enhanced rebates and targets those areas where you have the highest spending."
Seek out cards that offer accelerated reward earnings on categories like groceries, warehouse club purchases, gas and other items you seem to be buying all the time. This is also a good time to consider a card that funnels your rewards points into a 529 college education account. If your family is far-flung or if family vacations are a high priority, then a travel rewards card might fit your lifestyle best.
Parents of teens: "Sometimes your best bet is to get a retail card even if you have excellent credit," says Arnold, acknowledging teens' voracious appetite for items like clothes and electronics. Cards for department stores, apparel stores and big-box electronic chains often offer enhanced rewards and promotions to take the sting out of your teen's fashion-consciousness (or growth spurts). Arnold also recommends parents of adolescents look into cards that offer seasonal enhanced rewards in categories like movie tickets, theme parks and hotels (for all those college visits).
For all the reasons discussed in the "young adults" section, it's tougher for young people to get credit these days. So if you've got a responsible teenager (and lucky you!), you may want a card that gives you the flexibility of adding him or her as an authorized user. Detweiler says this is preferable to making your child a joint account-holder, since you can take them off the card (maybe when they get one of their own or when they're out of school) without having to close the account.
Singles - over 40: At this stage of the game, you're most likely at the peak of your earning potential, and you're unencumbered by many of the expenses that drag down a family budget. In other words, you're a credit card issuer's dream customer, and you should have a card that treats you as such. Provided your credit score is good (and yes, you should know what it is before you apply), keep the following in mind, Arnold advises. "If you're strictly looking for rates, look for 10% or lower, and look for a teaser rate of 0 for 12 months for purchases or balance transfers," he says. "If rates aren't such a concern, look for a generous reward program -- I wouldn't settle for 1% cashback. Go for something more aggressive."
Detweiler says at this point in your life, it's smart to have two (non-retail) credit cards: one that you use regularly, such as a reward card that lets you accrue points quickly, and a back-up card for emergencies that preferably carries a low APR.
Empty nesters: Even if you've been saving for retirement, this might be the stage in your life when you worry that your efforts aren't enough. If you'd like a little extra cushion once you exit the workforce, now's the time to sign up for a rewards card that funnels your points into a brokerage account or a tax-deferred IRA. You win twice with an arrangement like this: First of all, you're saving in a painless way, and IRA money can grow tax-deferred until you need it.
"If you have debt, this would be a time you really want to tackle it," Detweiler says. "If your credit history is strong, you may want to transfer your balances to a lower rate card to pay them off more quickly." In addition, she adds, this is a good time to take a good look at your reward cards and see if they still fit your lifestyle and deliver the kind of rewards you expected when you signed up. If not, it might be time for a switch, which is better to make now while you're still employed.
Retirees: A lot of retirees say they want to travel, so a travel reward card may be a good pick if you fall into this category. If even some of that travel takes place overseas, seek out a card that offers low or no fees for transactions conducted in foreign currency. Another thing to think about is that as you age, your medical expenses tend to creep up, so Arnold recommends a card that offers accelerated or targeted rewards for pharmacy purchases.
As a retiree, being on a fixed income means that a situation like a broken-down car or a malfunctioning hot-water heater might compel you to borrow money. For this reason, when choosing a card, Arnold says, "I recommend seniors focus on interest rates." He suggests visiting local banks or credit unions; they may not do any flashy marketing, but their under-the-radar low rates might surprise you. Community financial institutions are also less likely to carpet-bomb you with junk mail or send deceptive mailers that look like checks but are actually high-interest cash advances.
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