Fine print, Living with credit, Protecting yourself

4 things I wish I learned about credit sooner

Sienna Kossman

As a recent college graduate who has entered the workforce armed with both credit and debt, I’m learning a lot about credit that really would’ve been useful a few years ago. Had I known what I know now, I could have saved myself some worry and eased into the credit world a little more smoothly. For example:

1. A “preapproved” card offer is not always just that.

Ever since I turned 18, credit card offers have arrived in the mail on almost a weekly basis. Between the flashy graphics and the fake cards with my name on them, I used to feel like I was selected for something special.

I applied for my first credit card at the age of 19 from a “preapproved” mail offer. I went online and filled out the application with the offer code — only to get denied.

4 things I wish I learned about credit sooner

It wasn’t until recently that I learned that the majority of those offers are really conditional approval based on an estimated credit score.  Also, preapproval is no guarantee you’ll get the advertised offer. For example, if I had been approved, but didn’t have a high enough credit score to receive the special offer, I could’ve ended up with a higher interest rate and a small credit limit. Even though that’s not what happened, I’m definitely more cautious when examining mail offers these days.

2. It’s OK to ask for a credit limit increase.

Soon after I turned 20, I was approved for my first credit card through my bank. It was issued with a $500 limit and it’s still set there today, more than two years later. I never thought twice about it because I figured my bank knew best. I was new to credit, had a limited credit history and probably couldn’t qualify for much more. But now, not only has my income increased, but I also have established a positive borrowing and repayment history. Odds are if I asked for a limit increase, I’d get one.

Instead of being worried about challenging what I’ve viewed as my bank’s almighty judgment, asking for a limit increase could give me a little more financial breathing room in case of emergencies. It would also decrease my credit utilization ratio, which is one of the biggest factors in determining credit scores. FICO recommends keeping your credit utilization (the amount of debt you’re carrying in relation to your credit limit) as low as possible. A higher ratio is also a strong indicator of a lending risk and could negatively impact your score the next time an inquiry about your credit is made.

3. Read the fine print behind low introductory APR and annual fee offers to save money.

To be honest, phrases such as “no annual fee” and “0 percent APR for the first year” are part of the reason I now hold my second credit card, a co-branded airlines reward card. When I applied a couple of months after my 22nd birthday, I was flying frequently. Between the bonus miles and the “zero” and “no” phrases in the offer, I was sold. I was approved for the card, got my miles and then read through the size 8 font details. Yes, I now realize that 0 percent and no annual fee don’t last forever.

After the first year, the card will charge me a $95 annual fee and my APR will jump to 25.99 percent on any balance I carry, as well as on new purchases. I don’t regret getting the card, as the rewards work in my favor, but I now have to plan for that annual fee and keep an eagle eye on my balance to avoid high interest costs later. Had I done more research, I might have been able to find a card with similar travel rewards but with better terms.

4. You don’t need a lot of credit to build credit.

Before I opened my first credit card, I thought that if I didn’t accumulate a lot of credit, I would graduate from college with a low score and the inability to secure housing, low-interest loans and just about anything else of importance. Even after getting that first card, I was worried.

It wasn’t until after I applied for my second card — one that I really didn’t need or want — that I learned it would’ve been entirely possible to build a fairly healthy credit score with only one card. It’s not about the amount of credit you have, but how you manage it. Carrying a low balance and making consistent, on-time payments are two of the best things an individual can do to build good credit over time, according to credit bureau Experian. My card balances have been a bit all over the board, but I’ve never had a late payment, so I’m on the right track.

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  • I was always so nervous about asking for a credit increase. When I got my first credit card when I started college it was at $1,000. It stayed that way for 8 years until the bank upped it on their own… and my credit score really jumped when they did. It was kind of stupid. I probably should’ve called and asked about it.

  • walter

    Is it really okay to ask for a credit limit increase? Not if it results in a “hard” credit inquiry by the card issuer. Too much of this sort of activity could suggest to a rating agency that you are trying to get more credit because you are in financial trouble.

  • SD

    Disclosure: I work for one of the 3 bureaus, but my statement is not on behalf of my company, just as an industry insider and someone who has built credit scores.
    I’d like to clarify the last statement of point 2, because it could be misleading. A higher utilization “ratio” *is* a strong indicator of risk, but does not “damage your score over time.” This is because scores are calculated instantaneously when a report is pulled, so they have no record of ratios 1 or 2 years ago, only the last reported ratio. If two people are 25% utilized today, all other factors being equal (keeping in mind scores consider many factors at once), they would not have different scores if, say, one of them were 90% utilized a year ago vs the other being 50% utilized a year ago. Utilization only matters as of today (at least with current credit scoring models).

  • Sienna Kossman

    Hi Mel,
    It’s good to know I’m not the only one who had that fear! It’s definitely all a learning process so I wouldn’t feel bad about it. Plus, now you know for the future! It’s important to feel comfortable asking questions, especially when it comes to your finances.

  • Sienna Kossman

    Hi Walter,
    Thanks for your feedback! I completely agree. Too many hard inquiries could make a negative impact in your score and frequently asking for increases is not a good idea. However, if you’ve had an account for a while and it’s been in good standing, asking your card issuer for an increase is okay if you know you can manage the credit line increase responsibly. I was glad to learn that if the situation is right, asking for a credit line increase doesn’t have to be a negative and intimidating thing.

  • Sienna Kossman

    Hi SD,
    Thank you for the clarification! You made a very good point and I’ve clarified my phrasing so it is not potentially misleading.

  • Bill

    Sienna there is a wealth of information out there and I applaude you for helping others navigate the credit world. As a coach and parent of peers of yours I would have loved having resources like this back whern I was in college. Much success with your career and keep sharing what you learn.

  • Sienna Kossman

    Thank you for the kind words, Bill!