

Ask HN: Is credit necessary and how/where do you bank? - speek

I'm an incoming college freshman around the Cambridge, MA area and I've never had a credit card (never felt the need for one), but I've been getting a lot of advice from my peers and older friends to build up my credit as soon as I can. I do have a checking account as well as a savings account, thus far, with a small local bank and ING direct.<p>I'm a strict believer of don't buy crap you can't afford, so I was wondering if you guys/gals had any advice as to whether or not it will be worth it for a person like me to get a credit card and which national/regional banks would be worth banking at for small business/personal uses. Ideally, this bank would be internationally recognized (Swift code is a plus).<p>I may plan on taking out a loan eventually for some entrepreneurial purposes, but that's pretty much as deep as I'd like go into debt.
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brk
In your case being that you don't want to overspend, this is more about
convenience than credit, with the side benefit that you will build up a good
credit score just by acting naturally.

I put almost all my charges on my credit card. From a $1.50 bottle of soda to
a $100 tank of gas. The bill of course gets paid in full every month. Using
the card means I don't have to carry a bunch of case, and I'm afforded some
minor degree of security should my wallet get lost/stolen/misplaced as
compared to cash. I also get to "keep" my money an extra 30 days to earn a
trivial amount of interest.

It's good for you to be thinking about these things, but getting a credit card
is not a life-altering decision, it's just a normal thing like getting a cell
phone or a pair of shows. How you use the card, and put it to work for YOU, it
what makes all the difference.

~~~
goofygrin
seconded.

When I was in college I worked full time but used credit cards the wrong way
(and paid for it over the course of a few years).

Now just about everything goes onto a credit card ( _NOT_ a debit card) and
it's paid off monthly.

Having a good credit opens a lot of doors and helps lower a lot of costs. Car
insurance -- a huge factor in this is your credit score. Security clearances
-- bad credit = harder to get security clearance.

Also if you ever need to self fund a start up, having good credit is
important.

~~~
bct
Why not a debit card?

~~~
goofygrin
Like another poster stated, debit cards don't build credit, but there is one
_HUGE_ problem with debit cards.

If someone steals your card (or number) with a credit card and spends money
with it, the credit card company is out the money.

If someone steals your card (or number) with a debit card and spends money
with it, _YOU_ are out the money until your bank is benevolent enough to
return it.

I don't know about you, but I'd rather have someone steal Visa's money than
_my_ money.

------
tiomka
Do not be an ostrich, and follow the CASH ONLY rule. It doesn't make you any
smarter, credit is something you should learn to control and take advantage
of. Read/listen to this book: Philip Tirone - 7 Steps to a 720 Credit Score

Quick summary tips:

1\. have 3 different sources of credit (amex, visa and mc)

2\. use 30% of the limit (if your credit limit is 1000, and you put 900 on and
pay off it every month, companies will see it as if you are using 90% of your
credit, which will lower it)

3\. Call every 4-6 months and ask to lower rate/increase limit

4\. NEVER cancel a card, length of accounts is an average, and it will hurt
your score. (If you don't want to use a card, make it pay your light bill
automatically, and set up an monthly autopay)

5.

a. Quick tip to increase credit score: find someone you trust/that trusts you,
ask them to put your name on their card. Don't get the actual card, if they
have great credit, it will positively affect you.

b. If you cannot find anyone, go to Credit Union, open a savings account, put
in 1000, take 3x300 loans out against the savings account, repay loans
monthly, in 3 months your score will jump

* I am 24 and have an amex card with $25,000 limit, they send me promotions to get a cash advance for a fixed $3.99, great way to self fund ;-)

~~~
marvin
This is very interesting, but does having a high credit rating help you in any
material way? Or to put it in other words, does it prevent problems down the
road? What problems? How much money does your $25,000 credit limit save you
each month, and how much time do you spend managing it?

For my own part, it feels like ass-kissing to prove to the powers that be that
I am able to manage responsibilities and debt. It is not something I want to
do unless it provides a considerable benefit.

~~~
tiomka
As far as making life easier, here is how it helps me: 1\. Spending statements
at year-end for tax purposes. 2\. Miles for travel, I get a few trips per year
3\. Lower mortgage/car rates due to good credit

Unfortunately, this is the only way to prove it (that I know of) - have credit
and know how to manage it.

------
CatDancer
Taking your questions in reverse order, I would first recommend not borrowing
money to start or grow your business. Get investors instead. If your business
should happen not to work out the first time, you walk away free and clear and
can easily start another business. If you've borrowed money and your business
fails, you still have to pay back the loan. This is an amazing gift: if you
fail the first time, your net worth may be zero, but at least it won't be
negative. [<http://www.paulgraham.com/boss.html>]

If you do decide to borrow money, you do not need to have built up your credit
score. All you need to do is talk to a lender who has the intelligence to look
at your actual situation. (As Dave Ramsey likes to put it, a credit score is
lending for dummies). To get a mortgage for a house, for example, to qualify
for the best rate, all you need is to have paid your rent for two years early
or on time, to not to have bad debts, and to find a bank that does manual
underwriting. You do not need to have borrowed a dollar before in your life.

A VISA debit card will give you exactly the same level of protection against
theft and fraud as a credit card will. Look it up on their web site.

There are a few minor inconveniences to not having a credit score. For
example, yes, I did have an insurance company initially want to charge me a
higher insurance rate because I hadn't "established my credit". But all I had
to do was call them up and explain that I didn't have a credit score because I
didn't borrow money, and if they didn't give me a good rate I'd go to an
insurance company who would look at my actual situation. And they gave me a
reasonable rate. A five minute conversation. (If you want to be an
entrepreneur, this kind of negotiation is trivial).

So if you don't need to "build your credit", why is everyone you know (and all
the comments here on Hacker News) saying you should? Propaganda from the
credit card industry is pervasive (their advertising budget, iirc, is second
only to the auto industry). They have spent a great deal of money, time, and
effort coming up with plausible sounding reasons why you should buy their
product (credit), and ensuring that everyone has heard of them.

Your "credit score" is in fact a measure of how much profit you are making for
the credit industry.

Maximizing your credit score isn't going to help you, making products or
services that people want is what is going to make you successful. Don't spend
your time optimizing the wrong thing.

------
noodle
credit is necessary if you have plans to ever get anything with a loan, such
as a car or house or, as you say, entrepreneurial purposes. people won't give
you money if you don't have a history of being responsible enough to pay it
off. its also good to have a line of credit for emergencies.

get a card, use it to buy small things on occasion, and pay it off in full
every month.

edit: oh, also, i bank with bank of america and hsbc. hsbc for the high yield
online savings and payment accounts, bank of america for the size, checking,
and potential perks coming from establishing a long line of credit with a big
bank

------
ericwaller
Good credit is important for everyone, but especially so for entrepreneurs.

I didn't realize this until my application for Web Payments Pro (on behalf of
a newly formed corporation) was rejected by Paypal. Since the corporation had
no credit yet, my credit had to be approved. As far as the credit reporting
agencies were concerned, I didn't even exist.

If you plan on applying for business-related loans, you will definitely need
good credit. And my understanding is that credit reporting lags by at least a
year so get started building credit asap.

~~~
dangrover
This happened to me too. Still using Web Payments Standard.

I have no need for credit because I live well below my means and save up
furiously.

So I got a Capital One card (my first credit card) and on the 1st of every
month, I buy a single donut and pay it off in full 30 days later. I have no
idea how this affects my credit rating, but it's tasty.

------
ken
Your credit score isn't _just_ how well you pay off credit cards.

I have a "check card" (draws directly from my bank account, has a Visa/MC logo
so I can use it anywhere). I assume this doesn't affect my credit score much,
if at all -- it's rejected if I don't have the money in my account, so it's
not really "credit" at all.

In fact, I've never had a real "credit card", but that didn't stop my bank
from loaning me money for a car (they could see from my paychecks that I could
afford it), or from me renting apartments (my current landlord did a credit
check and said I have "excellent credit").

I think "you need a CC as soon as you go to college!" is mostly a scare story.
Admittedly I'm not a big spender (e.g., I'm not buying a condo on credit), but
I have yet to see any case where I was turned away from something due to my
lack of a CC.

While it's not a silver bullet, I see how they can be really handy, so if
you're responsible about paying it off, go for it.

------
cconstantine
I was credit card free until my senior year in college. I payed everything
with a debit card, payed my rent/utilities on time and didn't overdraft (ok, I
did on occasion, but it wasn' a pattern). All that amounted to was that I had
no negative mark on my credit report.

In my last semester of senior year I got a low limit credit card and used it
for gas. Only gas, and I payed it off every month. About 6 months after I
graduated I applied for a mortgage and fell into the highest credit group
(excellent, which was 700+ at the time, I think).

This is the pattern I would recommend. Some people advocate having a long
credit history as the best way to get good credit. I think the best way to do
it is to have a low debt/income ratio and use credit responsibly.

You can try to game the system in the short term, but doing that almost always
screws you in the long term because you're human, and humans make mistakes.

------
czstrong
I think it is a good idea to get a credit card and pay it off every month in
full. This will build up your credit and will be good for you in many ways.

Just an example. I'm a college Junior and I've had a credit card for about a
year now that gets paid off in full every month. Just last week I created my
first cell phone contract in my own name. I didn't have to leave a deposit
because my credit was good. However, a friend of mine, who has never had a
credit card and I guess has no credit, had to leave a 500 dollar deposit to be
held by ATT for a year.

------
pbh101
Being a college senior, I just want to point out again that credit cards
aren't intrinsically bad; rather, they're a tool that can be used effectively
or abused.

I have a local Credit Union Visa and an Amazon CC, the latter of which I only
use for Amazon because Chase Bank, the backer, is not nearly as friendly
(higher fees, etc).

I pay for almost everything with CC because I like the itemization. That being
said, I don't ever use them as 'credit' per se, to cover money I don't already
have in the bank. To me, they're merely a useful convenience.

------
amberb617
Adolescents tend to make tons of mistakes when it comes to credit and taking
out loans - I say that you should take it as it comes and only acquire one if
it is of absolute need.

For now, just spend the little money you have. It makes life simpler and you
don't have to worry about drowning in debt.

------
philipcristiano
You can get the card and cut it up right away so you never use it. By time the
card expires you will have a decent credit limit, score, and interest rate and
they will send you a new card. It would go faster if you used the card and
payed it off right away but you can't use it if it is in the trash.

------
timcederman
Starwood Express American Express card, in my opinion, has the best bang for
buck. Plus they've waived my yearly fee several times now.

If you are having trouble getting a card (like I did when I first moved to the
US), Amazon Visa was an easy card to qualify for, and has decent benefits.

------
ca98am79
I suggest getting a credit card that gives 1% cash back or some perk like this
- you can see some really good deals like this on <http://www.mymoneyblog.com>

------
speek
Does anybody here use a Credit Union in Massachusetts?

~~~
brk
No, but I've heard good/decent things about DCU,
<https://www.dcu.org/index.html>

They've been at 1 or 2 of the startups I've worked at over the years and
seemed decent enough. But, not being a customer of them (or any CU for that
matter), my opinion may not be worth the electrons it's carried on :)

~~~
altay
I used DCU for a car loan a few years ago. The rate was great -- 4% better
than I could find anywhere else -- and they were really friendly.

My only complaint was that it was kind of a pain to get to a branch. (I think
the closest one to Boston/Cambridge was in Waltham.)

