The only reason to get a credit card as a teenager


If you have the long-term goal of buying a house in an expensive area, you should get a credit card as soon as you're responsible enough to pay the full monthly balance on time.

My wife and I had dinner recently with a couple looking to buy their first house. They were having trouble getting a home loan because up until recently, the wife never had a credit card. And since she didn't have student loans and never bought anything on credit, she had no credit history. Even though both of them were employed, without a credit card, her income does not exist in the credit universe. This means they could only qualify for a loan based on her husband's salary. 

Building credit is an ironic process. Credit history is supposed to be an indicator of how reliable you are in paying your debts. But what if you're so responsible that you never go into debt? Unfortunately, being debt-free is not worth anything in the universe of credit. It's stupid.

Dave Ramsey, the popular personal finance guru, understands the insanity of all this. He recommends subverting the universe of credit by never getting a credit card. For buying a home, he recommends the manual underwriting process of obtaining a loan. Two of the requirements for manual underwriting are 1) 20% down payment 2) 15-year fixed rate mortgage. 

That is NOT going to work for a couple buying their first house in the major metro bay area. 

First-time home buyers here are extremely fortunate to put 10% down and afford a 30-year fixed rate mortgage that is less than the rule of thumb 1/3 of your monthly income spent on housing (mortgage, property tax, and insurance).

Judy has an awesome credit score. She got her first credit card in college. That was back in the free and easy days of credit. If you had a heartbeat, you could get a credit card. She would use the card occasionally and always pay it off in full. 

I didn't get a credit card until I started my first full-time job. I don't regret that - I think the privilege of consumer debt should go with having a stable income. In addition, both Judy and I were trained in the Asian way of being frugal with our money. 

However if you want to buy a house in an expensive area sooner than later, then it is important to build credit history quickly, getting a credit card while in college might be a good way if you're frugal enough to use it responsibly.

When I found out my friend never had a credit card, my first temptation was to make fun of her for not being like everyone else. And then I realized I should applaud for having the courage to be different - for not succumbing to the temptation of easy spending. The worst thing about this is she (and her husband) are being punished financially for making responsible money decisions.

NOTE 1: Whew. I did it. I wrote about money. It's actually much harder than writing about sex. Sex is personal but for Asians and perhaps particularly me, money is way personal. But if my spiritual values don't inform the way I see money, than something about the gospel is not getting through. 

NOTE 2: I'm thinking a little more about this and I'm not that convinced by my own reasoning - there has to be a better way than giving in to credit insanity and getting a credit card

Comments

  1. Glad to see you writing about money and finance. In fact there are so many verses in the Bible about money i'm surprised its not talked about MORE. In regards to note 2, either you play the credit game or you dont. I want to point out that although owning a home is nice, it's not a necessity nor is playing the credit game. However if you WANT a home then playing the credit game looks like your only option these days.

    Proverbs 22:7 says Just as the rich rule the poor, so is borrower servant (slave) to the lender.

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    1. Yeah it took me awhile to write about money but I'm getting there. . . people talk about it all the time but it's often disassociated from our faith.

      Home ownership is certainly not a necessity but it does offer a greater level of stability and freedom that renting does not. Freedom here means doing what you want to your house.

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