Wednesday, June 4, 2014

Adultification I: Credit Cards

I was thinking of a term to mean "the making of someone into an adult," and whereas just now as I was writing this, the word 'adolescence' came to mind, that doesn't convey the continual nature of what I'm thinking of, and it's already associated with something else. Likewise, 'adultery' is taken. So I made up my own word, adultification, to refer to the continuing process of gaining practical wisdom. I'll periodically post these as a theme. They'll probably be short, and they'll simply share what I've learned as I go along.

My first one will be about credit cards. I just ordered one from my bank, and for the simple reason that, as someone recently said to me, "no credit is worse than bad credit." You don't acquire a credit history with a debit card, that's the big downer. Without credit, you can't get loans easily, and you may pay higher interest rates if you do. That's a practical reason to make the effort to care. And so I have. 

I also thought that there was better security on credit cards, but was corrected by the bank president when I thought to ask. In fact, using a credit card or debit card online is not any safer than doing the alternative. Debit cards now come with fraud monitoring, and if you quickly alert the bank when your debit card has been stolen, they'll see to it that your money is returned and issue you a new card. The difference, then, between the debit and credit cards is that if you've set up various payments to do automatic withdrawals from your checking account, if the thief cleans out your account and charges to it cause it to be overdrawn in the meantime, it can cause you all sorts of trouble. Your car could become uninsured, you could get fines for not paying balances on time, all sorts of unnecessary trouble. That's the benefit of using a credit card. It will build your credit, and if it gets stolen, it doesn't sap your checking account. 

Now I feel like I have a much better understanding of that aspect of why having the two different cards is useful. Not being versed in Economics, however, I still am not completely sure of why using a debit card has no impact on your credit rating. If anyone knows the mechanics and wants to explain, please leave a comment, I'd love to learn more.

~ Rak Chazak

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