Applying for many credit cards can lead to overspending. However, there are many cards with different benefits for each lifestyle.
Photo by Megan Martinez
Finances come with a sliding scale of benefits and consequences. Financial literacy sets up a successful or ruinous future, a preventable outcome with research before embarking onto financial products.
Financial literacy is learning how to maximize personal finances by planning based on understanding budgeting, credit scores, interest rates, investing, managing and avoiding debt.
Misconceptions portray financial literacy to only be for the wealthy; however, it is meant for everyone to navigate their own finances.
Justin Bredienbach, university assistant accounting professor, suggested making detailed financial short and long term goals in order to “have an understanding of your personal financial position.”
According to Forbes, “Financial literacy is an indispensable skill in today’s world. Beyond financial health, it empowers individuals, reduces stress, and fosters a sense of security.”
Today, more information is available and accessible, especially by social media or specific financial tracking apps.
“Students are becoming much more savvy with money…It’s more front of mind nowadays.” Bredienbach said, “They are understanding the value of a dollar or understanding the power of borrowing, but also the negatives when it comes to borrowing, if not done right…the more information that people have, the more accessible that information is, the better off they are.”
It is never too late nor too early to become financially literate by learning through videos or talking to professionals. There are many financial content creators trying to help increase financial literacy through TikTok, YouTube and Instagram.
Setting up a basic financial literacy foundation in high school can set graduating high school students up for success by learning about their “checking and saving accounts, how to balance a checkbook, how to properly use a credit card and get your credit started,” US Bank teller Tiffiani Harlan said.
According to Harvard, “The sooner you start building your credit profile, the better off you’ll be in the future.”
An important financial product for successful futures are credit cards. However, credit cards can be “double edged swords,” Fifth Third Bank teller J. Wyatt Beddow said.
Credit cards report credit to credit bureaus in order to calculate a credit score. In other words, how credit cards are paid—whether on time or late, in full or the minimum—are reported to the credit bureaus who record consumer trustworthiness and generate credit scores to show other lenders how likely a consumer would pay back a loan.
The use of credit cards can lead to an excellent score or a poor score based on consumer responsibility.
“Nobody can stop you from using it. Nobody can stop you from spending it. Nobody’s gonna hold your hand and take care of you. And banks aren’t going to watch out for people either because the more you put on a credit card, the more the bank makes an interest.” Beddow said, “So nobody’s going to be looking out for your best interest except for yourself.”
Scores are generated by missed payments, utilization, length of loans, amounts in accounts and inquiries.
An excellent score can aid in obtaining cars, houses and better rewards from more credit cards.
A poor score can lead to bankruptcy and delinquency deeming the consumer unfit for any more credit cards and any other loans for cars or houses. After 30 days of a missed payment, the bank will report the consumer as a delinquent to the credit bureau. After 90 days of a missed payment, the bank will close that card after they sell that debt to a collection agency who will charge the delinquent consumer with collection and late fees on top of the missed payment amount.
Credit cards have detailed benefits requiring research in order to pick the card which best suits the consumer’s lifestyle.
There are many credit cards marketed towards students such as Discover it Student Card and Capital One SavorOne Students card. If there’s approval for multiple credit cards—if used responsibly—two credit cards can be used for bills and other for random expenses. It’s useful to have low balances on both while having more money to spend on certain things.
With a professional job, getting more credit cards for emergencies, random expenses and bills is helpful for credit scores to see how the number of loans are being handled and paid off.
Getting too many credit cards can become a trap. Having too many and being unable to pay them all off will negatively impact the credit score and deem the consumer as untrustworthy and reckless.
Recently more retail stores have begun offering their own credit cards for customers to use only at their locations such as Walmart, Target and Sephora. They offer big discounts if purchased day-of in order to entice customers, but rewards after the purchase of the credit card aren’t as big or worth the responsibility of that store credit card.
“There have been a lot of studies out there with people where people do naturally spend more with a credit card compared to if they’re using cash or even their debit card,” Bredienbach said. “And stores know that, they’re very good in terms of that psychological manipulation.”
Discover and Capital One are online banks that have similar features to brick and mortar banks. Both make their money off of interest, yet their biggest difference is in the rates.
Online banking offers services to high-risk individuals, such as a younger or second chance audience, because “Capital One and Discover are newer, so they’re going to be more comfortable growing their customer base, so they’re going to take more risk on higher risk borrowers.” Beddow said.
Brick and mortar banks’ interest rates are usually higher because “they’ve got to maintain those buildings, they’re gonna have utility costs, they’re gonna have property taxes, they’re gonna have maintenance and repair costs.” Bredienbach said.
Capital One and Discover reached an agreement to obtain each other’s services. Capital One gets Discover’s call center and Discover widens their processing payment to Capital One’s Mastercard versatility.
Having competing online banks “drives down prices, that drives down rates, that drives up competitiveness with credit cards.” If Capital One and Discover merge, their competition would instead be big brick and mortar companies such as Wells Fargo and Chase, which would eliminate more online options and increase inflation.
Harlan overall suggests researching before obtaining loans, credit cards and investments to find options that best match lifestyle.
