It is always a big day in a person’s life when it happens. Even from when we were little kids, most of us dreamt of it. We pretended to use them. We watched in awe as our parents pulled them out. We instinctively knew someday that would be us! So just exactly what is this mystical thing that has held our fancy through all of our childhood and into adulthood? Yep, you guess it, credit cards. We love them! But just how do we know exactly when we are ready, really ready, for them. When are we ready for the responsibility? The simplest answer is that there is no set time that is the same for everyone which dictates when a person is ready to open a charge account. However, there are some markers than can help a person decide if and when they are ready, or should I say, when they are more prepared to handle the demand of that little three by two plastic demon.
How old do you have to be to apply for a credit card?
Although it has been said that age is just a number, in cases of legally binding contracts or decisions that may affect your life for many years, just a number is really not an acceptable answer. The official answer is that a person must be a least 18 years old to apply for and obtain a credit card. Remember, a credit card is a legal contract between two entities. In America, the age of 18 is widely considered reaching adulthood; where a person can legally vote, go to war, and sign contracts among other things.
While most credit card companies are more than happy to sending out thousands of offer mailings to all those 18 years old and above, they may apply stricter guidelines as to who can qualify for their card, especially if you are between the ages of 18 and 21. Just because you have just celebrated your 18th birthday does not guarantee that you will get that credit card you have been dreaming of since your childhood.
How much should your debt to income ratio be?
A person’s debt to income, or DTI, ratio can be a pivotal factor in that person’s ability to obtain loans or lines of credit. So, what exactly is DTI? Let us find out together. Firstly, let me define DTI for you; DTI is found by taking a total of all your monthly debts (ie. rent, utilities, insurance, etc.) divided the total of all your combined monthly income. This ratio is your personal DTI. This number is important because financial and credit lenders use this number to help them determine if you will be able to pay back loans or other financial obligations. So, what is a good DTI to have? Here are a few percentile benchmarks to give you an idea and whether your DTI will help or hinder you borrowing efforts.
- 36% and below: You should be in good shape. A DTI in this range most likely indicates that you are managing your debt well or at the very least have sufficient income to stay on top of paying your debts.
- 36% to 42%: You might need a little work. A DTI in this range causes some caution lights to appear for lenders. If you can, you should probably work on getting your DTI down before trying to get a loan or credit card. If not, lenders may impose other restrictions (ie. having a co-signer) for you to obtain the loan or credit card.
- 43% to 50%: You need a lot of work. A DTI in this range can severely limit your access to loans or credit cards without significant restrictions or limits. When lenders see DTIs in this range, they see red flags!
- 50% and up: If you are in this range, you need to spend a considerable amount of your time paying down your debts and put the idea of getting a loan or credit card onto the back burner. Lenders will consider you a very high risk if you DTI is in this range and most likely will decline your application out of hand.
Do you need to have a job before applying for a credit card?
Although all lenders will sleep better at night if their card holders have a verifiable job; most credit card companies do not require proof of employment before issuing a credit card. However, you may have to provide some sort source of income before being accepted. Again, a credit card company may add on other restrictions or requirements (ie. a co-signer) if you do not provide them with employment or other source of income details.
There are certain types of cards, called Secured Credit Cards, that an applicant can apply and obtain without having a job, providing the applicant can provide a deposit equal to the line of credit to the card lender institution.
Who should or should not apply for a credit card?
Even though you may be able to meet the requirement on paper to apply for a credit card that does not necessarily mean that you should. There is more to obtaining a credit card than just being of age, having a social security number, and having a job. There are several other considerations that a person should think about before jumping into a relationship with a credit card. How are you with your money? Are you being responsible (ie. paying bills on time, saving) or are you barely living paycheck to paycheck? Do you have a budget, and do you stick to it? What is your attitude towards money (ie. conservative or frivolous)? Do you have an impulsive personality, or can you stick to delayed gratification?
The question was asked, when is a person ready to apply for a credit card. And as you have just read there are a myriad of factors that come into play when considering if a person is prepared to get the plastic timebomb. Things like a person’s age and ability to pay are just a few things that go into getting a credit card. There are also things like DTI (debt to income ratio) that credit card companies look at as well before extending a credit card.
However, most people only consider these ‘on paper’ factors; and they really need to take a personal inventory before applying for a credit card. A person’ personality and maturity level can and will play a huge factor in determining whether they are prepared for the responsibilities of managing that plastic taskmaster. A credit card can give a person a sense of freedom. But when the bills turn up at the end of the month, that sense of freedom may turn into a life shackled to your new plastic masters.