Spare change: Credit card edition

Get Rich Slowly - Personal Finance That Makes Sense.

Spare change: Credit card edition

This post is from staff writer April Dykman.

They got me during my freshman year of college.

I was walking back to my dorm, just an unsuspecting university student, and a guy with a clipboard approached. One quick application and a t-shirt later, and I had a Visa credit card and a $1,000 credit line.

I never meant to be irresponsible with it, but a few purchases here and a few purchases there, and before I knew it, I was close to hitting my limit. Only I had no idea. When the first bill arrived, it was almost two times higher than I’d expected.

Thankfully, I had a part-time job and could pay it off. Only I never really did. I’d pay it off, then run it up again, unaware at the time of how much the interest charges were really costing me. They seemed small and relatively harmless. And didn’t everyone use credit cards?

As longtime readers know, it wasn’t until a few years later that I finally broke the cycle and got serious about paying off my cards and never carrying a balance again.

Because of my experience, I was particularly interested in a report that said that fewer young Americans are using credit cards. And that brings me to the first link in this credit cards edition of Spare Change…

More young Americans living credit card-free

The number of consumers ages 18 to 29 who don’t have a credit card has doubled since 2007, according to findings from credit score company FICO. In addition, credit card debt in this age group has dropped from an average of $3,073 to an average of $2,087 per person.

So what’s the reason for this trend? The article cites three reasons:

1. After watching older generations get hit hard by the recession, young Americans are choosing debit over credit.

2. Aggressive marketing of prepaid debit cards to young people.

3. The CARD Act makes it harder for consumers under age 21 to obtain credit cards, since it requires a co-signer or proof of adequate income.

And while debt is going down, credit scores are going up among this age group. Last year 11.2 percent had an excellent FICO score (760 or higher), up from 8.6 percent in 2005.

Stay-at-home spouses get credit

Stay-at-home spouses who don’t earn an income were dealt special challenges when the CARD Act was passed.

According to the regulations, only a person’s individual income or assets could be considered by credit issuers. This means that 16 million stay-at-home spouses couldn’t apply for or obtain credit in their name, even if they had access to income earned by the working spouse.

But thanks to a new amendment, the rules have changed.

“Stay-at-home spouses or partners who have access to resources that allow them to make payments on a credit card can now get their own cards,” said CFPB Director Richard Cordray in a press release. “Today’s final rule is an example of the Bureau’s commitment to working with consumers and financial institutions in order to ensure responsible access to credit for American families.”

Does this credit card make me look fat?

If you often buy junk food on impulse, could your credit card be to blame?

There is a connection, according to research published in the Journal of Consumer Research.

Researchers looked at six months of 1,000 households’ shopping habits. They found that shoppers who paid with plastic (either credit or debit) bought more unhealthy food than those who paid in cash. They also did a controlled experiment, offering two groups the option to buy healthy and unhealthy foods. The first group was told that they could use any payment method, the second was told they could only pay in cash. Again, the ones who paid with plastic bought more junk food.

The researchers concluded that “consumers experience less pain when they use less vivid and emotionally more inert modes of payment,” making them more likely to succumb to impulse buys.

Based on my personal experience with credit, especially as a college freshman, I know it feels far less painful to pay with plastic than it does to pay in cash. Slapping down a card is quick and easy. Sometimes my mind even wanders as I’m paying, and I find myself checking the receipt later just to be sure I was charged correctly! But paying in cash is another story. Counting out several $20 bills really makes me think about what I’m buying, and whether it’s worth all those $20s*!

*I was going to say “Jacksons,” but like ankle-length pants and pixie haircuts, I’m not sure I can pull that off.

What about you? When did you get your first credit card? How do you pay for most purchases?