I'm 18, working hard on getting out on my own, getting my first job, and eventually joining the Marine Corps. However, I've never had much of a bank account, certainly not a debit/credit card, and don't know much about any of that crap. So I was wondering if anyone had a good source of the basic stuff that one needs to know to get into having their first bank account and all that. I've heard things like "get a credit card early on to build credit", but I'd like some more information on what all of the weird numbers mean in terms of choosing a bank, that sort of thing.
That might sound a tad silly but: find an accountant? They know, or are able to find easily, anything you might want to know. They can help you filling the 1040 and potential 1099s and what have you, they can help you keep your finances in good order if you don't have the time or courage to do it.
@MordeaniisChaos: Creating a bank account is pretty easy. You just need an idea of how often you are going to be transferring money from it. If you are very rarely making any transfers, then you should sign up for a banking plan that has a really low monthly cost (if any at all) with few included transactions. The main difference between the plans offered is how many free transfers are included. If you use more than the plan covers, there will be a fee associated with each additional one (the fees aren't that high; maybe 50 cents or a dollar for a debit payment, a dollar or two for an ATM withdrawal, for example). These transfers include things like withdrawing money at an ATM, paying bills from the account, and paying with a debit card.
As for a credit card, it's a good idea to start building up a credit rating. Of course, never spend money that you do not have. Treat the credit card as if you are using it to withdraw directly from your bank account, and don't go into debt. That way, you will build up a credit score, a rating that shows you can be trusted to pay back borrowed money.
With the credit card thing I finally got one when I was 21. If you go on the Web and search for them you can find all kinds of credit cards. Depending on what credit card you get you can get certain offers deals almost. When I first got my Chase credit card I got 6 months of no interest on my balance. So anything I put on it it wouldn't build any interest against the amount of money I spent. The only thing I used it for up front was gas and a few things here and there. What I did was payed it off as soon as it posted to the credit card so I wouldn't hold a balance. Just buy small things at first and build it up. Pay everything off right away after using the credit card.
As far as getting a debit card/bank account that's easy. Just go to your local bank or national bank and they will help you with getting a checking account setup. Best thing to do also with your job is get direct deposit if they offer it.
You want credit card interest low, and savings/chequing interest high.
Check credit unions in your area. Credit Unions can sometimes blow commercial banks out of the water when it comes to interest/features, but it also depends what you're looking for. "Unlimited Debit Transactions" or "Free Passbook Updates" etc might be much more valuable to someone in your situation then in my situation.
If you do decide to pay everything (or most) here on out through credit instead of cash, it might be worth it to look into a card that will offer you rewards for your purchases. You pay an annual fee, and gain some sort of reward (or reward points) for every bit of money you spend. I'm guessing that this will probably be more applicable to you after you're done service.
At any rate, a bank is a bank. It's entirely possible to choose a bank, and then switch from them later on. I would certainly look into a Credit Union, though.
I really like Ally bank, they have one of the highest savings account rates (though Capital One has the highest, last I looked.. I miss when Ally's rate was over 1% :(. Credit unions are also a good option and being in the military you have sever doors open there as well. Since you are 18, it is going to be difficult to get a credit card, thanks to new laws, but you may still be able to get one with a low balance. Once you're 21, it will be much easier to obtain credit. I have one credit card that I essentially use as a debit card where I pay it off in full at the end of the month and if I don't have the money to buy it, it doesn't go on the card. The reason I favor that approach is that the credit card offers discounts and 1% cashback on things I have to buy anyway (food, bills, ect) and it's safer to carry a credit card than a debit card as it offers better protection in the case of fraud or theft. Capital One and Discover both offer % cashback rewards without an annual fee if you get approved.
Anyway, I haven't had my caffeine yet and this post may not make sense :P Here are some of my favorite finance sites where I've learned a lot about how to find the best way to manage finances. If you do go the accountant route (not a bad idea if you have the money), go for a fee based accountant, not one on commission or an hourly basis, that's what everyone has told me to do anyway :)
@MAGZine: I was looking into the popular credit union in my area, but I've heard issues with locations being hard to find, and as I won't be hanging around in this state for too much longer, I'm worried about getting involved with a local bank.
@Greg818: If that was an option, I would, but at 18 without having held a real job, I don't have any money to spend n an accountant, and honestly I like being self reliant so either way I want to be knowledgeable about personal finance.
Firstly, find a credit union. They are so much better than dealing with a bank. The "branch locations" thing really isn't a problem as long as it's a member of the CO-OP/Alliance One network, you can use any other Credit Union's ATM for free. However, you'd still need to call them by phone for anything more advanced than what you can do from an ATM or online which typically isn't much. I think the only time I've walked in to a First Tech branch was to initially open my account and I've done everything else through online banking or over the phone.
If you don't want to use a Credit Union for whatever reason the only bank that I highly recommend is USAA; they're fantastic. They're located in Texas but again, you're pretty much doing everything over the internet or the phone so as long as you don't have a problem with that, they're great.
At 18 without a job you might not qualify for a credit card. If so, look in to getting what's called a "secured credit card". These generally require a deposit which becomes your credit line. Example, if you put a $400 deposit down, your credit line on the card is $400. Always ensure you, at the very least, make the minimum payment each month. Several banks and credit unions offer these but make sure it reports to all three credit boroughs. This allows you to establish a credit line which will help immensely in things like finding a job, opening a bank account, getting a loan, getting a mortage, getting a car loan, etc. There's also a whole thing about getting a credit card and keeping a balance on it in order to show people looking at your credit that you know how to manage a debt.
While I'm sure you can just type "credit unions vs banks" or something in to your favorite search engine, the reason I recommend using a credit union over a bank is that they are typically not-for-profit organizations run by their members/account holders. This generally means lower fees, much higher interest rates on your accounts (this is an extremely good thing), much more personalized service, lower interest rates on loans/credit cards (this is a good thing), etc, etc. For example, when I was with JP Morgan Chase, the interest rate on my account was around 0.12%. Since switching to First Tech Federal Credit Union, the interest rate on my account is 2.54%. That's an absolutely insane difference! Seriously, I cannot say enough good things about credit unions over dealing with banks. Just be sure to do some research first, make sure the credit union you're interested in has a good online banking website with plenty of tools available (such as online bill pay) and you will be quite happy.
holy hell 2.54%!?! Where do I sign up? Is there a restriction to who can join that particular credit union?
Yeah, now that I'm more awake. A secured card is a good thing to look into, and likely the only kind of credit card you will be able to get. Recent laws have made it practically impossible for 18 year olds to get credit cards job or not. Just make sure that the secured card reports to all three credit unions and try to find one without an annual fee. If you go to credit card issuers like Capital One, Discover, ect you can get secured credit where you don't have to put any money down but they do charge an annual fee (and the interest rate is rather high). Alternatively, you can go to a bank and they will usually offer you secured credit that basically amounts to you giving them a certain amount of money into a savings account and then they give you a line of credit against that amount. After a year or so, if you handle the credit well and pay it off in a timely manner, you can transition it into a fully fledged credit card and you can get your deposit+interest back. That's how my bank does it anyway.
There is debate on whether you need to keep a balance on the card to look good on credit reports, but my advice is to pay more attention to on time payments and paying it off in full every month. When doing that, you will need to check your credit report (a good habit to get into anyway, look into annualcreditreport.com–that is the /only/ free and legit site to get your credit reports from for free) and make sure that the credit card is reporting your actual credit limit and not the highest balance. (Capital One did that to me and because I always paid it off every month my credit utilization ratio looked really bad, once I reported them to Equifax and TransUnion they corrected it to reflect that my credit was my credit limit and not my highest balance, just FYI).
I have no debt and a credit score of 747, so I'm sorta doing things right lol. Will be looking into a credit union if the rates really are that much better! o.o.
Moneycrashers.com and Mint.com are also good websites to use. Credit Karma is also a good website for getting an estimate of your credit score and free credit monitoring. I've been using it for about a year without issue.
Best of luck man, feel free to ask us any other questions, seems like the above posters have some good information and experiences to share.
EDIT: now I remember why I mentioned the score, it took a while to get it that high, and the most important thing that I've found to getting good credit is having a clean history. Be sure to check your report often (or use the monitoring service mentioned below) to make sure that there are not any errors because they do mess up and the earlier you catch them the easier it is to fix. Things like good car loan repayments can also help in building credit beyond just using credit cards, which can be hard to get. In the end though, don't get too worked up about the score, just focus on building good habits of payments and not spending more than you earn.
holy hell 2.54%!?! Where do I sign up? Is there a restriction to who can join that particular credit union?
Yes, but it's pretty darn lenient. Basically if you work for a tech or telecom company or work in the state of Oregon you're good to go. You can check out their requirements here: https://www.firsttechfed.com/meet/joinus.aspx. They also have a link to a large PDF listing all their partner companies which opens you up for eligibility if you work for one.
The crazy thing is that First Tech doesn't even have the highest rates, at least in the state of Washington. BECU (Boeing Employee Credit Union, which is now open to all WA residents) gives 6.17% on checking as long as your balance is under $500, SMCU offers 6.14%, Prevail offers 3%, the list goes on.
It's also worth mentioning that most credit unions typically have something setup where if you meet a few requirements (in First Tech's case it's use your debit card 12 times a month, enroll in online statements, and have a direct deposit going), they will add a feature to your account that allows you to use any ATM without a fee from them and they will pay the fee the bank charges to use it as well. This eliminates the whole "I don't use a credit union because ATMs are hard to find" reasoning. It also looks like Ally Bank and USAA offers something like this as well.
Edit:
@WolfOfOne: Over at SA there was a pretty big thread about why everyone should move out of a bank and in to a Credit Union ASAP and I learned quite a bit from reading most of it. I used to bank with Washington Mutual since they were the "little guy" and seemingly less evil than something like Bank of America. Sadly, good ol' WaMu went belly up when the economy went down the tubes and got bought out by JP Morgan Chase. Things stayed the same for a little while but then they started slowly merging all the WaMu accounts in to their own "versions" of the accounts we had. I learned the hard way that they monitor where you buy things and if you do a solitary purchase that's out of the norm for you they freeze your entire account until you call them and say that yes, it was you who made that purchase. Cute the first time, extremely annoying the 9th and 10th time it happened. When they added a $5/mo "maintenance fee" to my supposedly free checking account that's when I told them to go screw off.
Holy crap, 6.17%, that's better than my stock porfolio is doing o.o. Wish I worked for Boeing or lived in Washington :P Hmm, I prolly wouldn't qualify for First Tech since I technically work for myself. I'll have to look for other credit unions to see what I can get in on :).
@Helushune said:
@WolfOfOne said:
holy hell 2.54%!?! Where do I sign up? Is there a restriction to who can join that particular credit union?
Yes, but it's pretty darn lenient. Basically if you work for a tech or telecom company or work in the state of Oregon you're good to go. You can check out their requirements here: https://www.firsttechfed.com/meet/joinus.aspx. They also have a link to a large PDF listing all their partner companies which opens you up for eligibility if you work for one.
The crazy thing is that First Tech doesn't even have the highest rates, at least in the state of Washington. BECU (Boeing Employee Credit Union, which is now open to all WA residents) gives 6.17% on checking as long as your balance is under $500, SMCU offers 6.14%, Prevail offers 3%, the list goes on.
It's also worth mentioning that most credit unions typically have something setup where if you meet a few requirements (in First Tech's case it's use your debit card 12 times a month, enroll in online statements, and have a direct deposit going), they will add a feature to your account that allows you to use any ATM without a fee from them and they will pay the fee the bank charges to use it as well. This eliminates the whole "I don't use a credit union because ATMs are hard to find" reasoning. It also looks like Ally Bank and USAA offers something like this as well.
Since we're on the topic of credit, it's worth mentioning that a credit card alone to "build credit" is only one point when it comes to actually building credit. You can have a credit score of 850, but it doesn't mean anything if you've never held any real debt when it comes to say, buying a house.
Especially with larger purchases--such as a house--banks will evaluate things such as your ability to manage your debt... and doing so requires that have debt. If you plan on buying a house, it's not such a bad idea to get a car that you have to make payments on, just to demonstrate that you can keep your finances in order.
If that's not an option, some people have suggested taking out a loan against a savings account and making payments using the loan money to pay off the loan. Will cost you interest in the end but it's an alternative to a car payment.
I'm 18, working hard on getting out on my own, getting my first job, and eventually joining the Marine Corps. However, I've never had much of a bank account, certainly not a debit/credit card, and don't know much about any of that crap. So I was wondering if anyone had a good source of the basic stuff that one needs to know to get into having their first bank account and all that. I've heard things like "get a credit card early on to build credit", but I'd like some more information on what all of the weird numbers mean in terms of choosing a bank, that sort of thing.
That might sound a tad silly but: find an accountant? They know, or are able to find easily, anything you might want to know. They can help you filling the 1040 and potential 1099s and what have you, they can help you keep your finances in good order if you don't have the time or courage to do it.
@MordeaniisChaos: Creating a bank account is pretty easy. You just need an idea of how often you are going to be transferring money from it. If you are very rarely making any transfers, then you should sign up for a banking plan that has a really low monthly cost (if any at all) with few included transactions. The main difference between the plans offered is how many free transfers are included. If you use more than the plan covers, there will be a fee associated with each additional one (the fees aren't that high; maybe 50 cents or a dollar for a debit payment, a dollar or two for an ATM withdrawal, for example). These transfers include things like withdrawing money at an ATM, paying bills from the account, and paying with a debit card.
As for a credit card, it's a good idea to start building up a credit rating. Of course, never spend money that you do not have. Treat the credit card as if you are using it to withdraw directly from your bank account, and don't go into debt. That way, you will build up a credit score, a rating that shows you can be trusted to pay back borrowed money.
With the credit card thing I finally got one when I was 21. If you go on the Web and search for them you can find all kinds of credit cards. Depending on what credit card you get you can get certain offers deals almost. When I first got my Chase credit card I got 6 months of no interest on my balance. So anything I put on it it wouldn't build any interest against the amount of money I spent. The only thing I used it for up front was gas and a few things here and there. What I did was payed it off as soon as it posted to the credit card so I wouldn't hold a balance. Just buy small things at first and build it up. Pay everything off right away after using the credit card.
As far as getting a debit card/bank account that's easy. Just go to your local bank or national bank and they will help you with getting a checking account setup. Best thing to do also with your job is get direct deposit if they offer it.
You want credit card interest low, and savings/chequing interest high.
Check credit unions in your area. Credit Unions can sometimes blow commercial banks out of the water when it comes to interest/features, but it also depends what you're looking for. "Unlimited Debit Transactions" or "Free Passbook Updates" etc might be much more valuable to someone in your situation then in my situation.
If you do decide to pay everything (or most) here on out through credit instead of cash, it might be worth it to look into a card that will offer you rewards for your purchases. You pay an annual fee, and gain some sort of reward (or reward points) for every bit of money you spend. I'm guessing that this will probably be more applicable to you after you're done service.
At any rate, a bank is a bank. It's entirely possible to choose a bank, and then switch from them later on. I would certainly look into a Credit Union, though.
I really like Ally bank, they have one of the highest savings account rates (though Capital One has the highest, last I looked.. I miss when Ally's rate was over 1% :(. Credit unions are also a good option and being in the military you have sever doors open there as well. Since you are 18, it is going to be difficult to get a credit card, thanks to new laws, but you may still be able to get one with a low balance. Once you're 21, it will be much easier to obtain credit. I have one credit card that I essentially use as a debit card where I pay it off in full at the end of the month and if I don't have the money to buy it, it doesn't go on the card. The reason I favor that approach is that the credit card offers discounts and 1% cashback on things I have to buy anyway (food, bills, ect) and it's safer to carry a credit card than a debit card as it offers better protection in the case of fraud or theft. Capital One and Discover both offer % cashback rewards without an annual fee if you get approved.
Anyway, I haven't had my caffeine yet and this post may not make sense :P Here are some of my favorite finance sites where I've learned a lot about how to find the best way to manage finances. If you do go the accountant route (not a bad idea if you have the money), go for a fee based accountant, not one on commission or an hourly basis, that's what everyone has told me to do anyway :)
getrichslowly.org
20somethingfinance.com
frugaldad.com
I'm almost 22 and have been where you are, so if you have any specific questions feel free to ask when I'm more awake haha.
@MAGZine: I was looking into the popular credit union in my area, but I've heard issues with locations being hard to find, and as I won't be hanging around in this state for too much longer, I'm worried about getting involved with a local bank.
@Greg818: If that was an option, I would, but at 18 without having held a real job, I don't have any money to spend n an accountant, and honestly I like being self reliant so either way I want to be knowledgeable about personal finance.
Firstly, find a credit union. They are so much better than dealing with a bank. The "branch locations" thing really isn't a problem as long as it's a member of the CO-OP/Alliance One network, you can use any other Credit Union's ATM for free. However, you'd still need to call them by phone for anything more advanced than what you can do from an ATM or online which typically isn't much. I think the only time I've walked in to a First Tech branch was to initially open my account and I've done everything else through online banking or over the phone.
If you don't want to use a Credit Union for whatever reason the only bank that I highly recommend is USAA; they're fantastic. They're located in Texas but again, you're pretty much doing everything over the internet or the phone so as long as you don't have a problem with that, they're great.
At 18 without a job you might not qualify for a credit card. If so, look in to getting what's called a "secured credit card". These generally require a deposit which becomes your credit line. Example, if you put a $400 deposit down, your credit line on the card is $400. Always ensure you, at the very least, make the minimum payment each month. Several banks and credit unions offer these but make sure it reports to all three credit boroughs. This allows you to establish a credit line which will help immensely in things like finding a job, opening a bank account, getting a loan, getting a mortage, getting a car loan, etc. There's also a whole thing about getting a credit card and keeping a balance on it in order to show people looking at your credit that you know how to manage a debt.
While I'm sure you can just type "credit unions vs banks" or something in to your favorite search engine, the reason I recommend using a credit union over a bank is that they are typically not-for-profit organizations run by their members/account holders. This generally means lower fees, much higher interest rates on your accounts (this is an extremely good thing), much more personalized service, lower interest rates on loans/credit cards (this is a good thing), etc, etc. For example, when I was with JP Morgan Chase, the interest rate on my account was around 0.12%. Since switching to First Tech Federal Credit Union, the interest rate on my account is 2.54%. That's an absolutely insane difference! Seriously, I cannot say enough good things about credit unions over dealing with banks. Just be sure to do some research first, make sure the credit union you're interested in has a good online banking website with plenty of tools available (such as online bill pay) and you will be quite happy.
holy hell 2.54%!?! Where do I sign up? Is there a restriction to who can join that particular credit union?
Yeah, now that I'm more awake. A secured card is a good thing to look into, and likely the only kind of credit card you will be able to get. Recent laws have made it practically impossible for 18 year olds to get credit cards job or not. Just make sure that the secured card reports to all three credit unions and try to find one without an annual fee. If you go to credit card issuers like Capital One, Discover, ect you can get secured credit where you don't have to put any money down but they do charge an annual fee (and the interest rate is rather high). Alternatively, you can go to a bank and they will usually offer you secured credit that basically amounts to you giving them a certain amount of money into a savings account and then they give you a line of credit against that amount. After a year or so, if you handle the credit well and pay it off in a timely manner, you can transition it into a fully fledged credit card and you can get your deposit+interest back. That's how my bank does it anyway.
There is debate on whether you need to keep a balance on the card to look good on credit reports, but my advice is to pay more attention to on time payments and paying it off in full every month. When doing that, you will need to check your credit report (a good habit to get into anyway, look into annualcreditreport.com–that is the /only/ free and legit site to get your credit reports from for free) and make sure that the credit card is reporting your actual credit limit and not the highest balance. (Capital One did that to me and because I always paid it off every month my credit utilization ratio looked really bad, once I reported them to Equifax and TransUnion they corrected it to reflect that my credit was my credit limit and not my highest balance, just FYI).
I have no debt and a credit score of 747, so I'm sorta doing things right lol. Will be looking into a credit union if the rates really are that much better! o.o.
Moneycrashers.com and Mint.com are also good websites to use. Credit Karma is also a good website for getting an estimate of your credit score and free credit monitoring. I've been using it for about a year without issue.
Best of luck man, feel free to ask us any other questions, seems like the above posters have some good information and experiences to share.
EDIT: now I remember why I mentioned the score, it took a while to get it that high, and the most important thing that I've found to getting good credit is having a clean history. Be sure to check your report often (or use the monitoring service mentioned below) to make sure that there are not any errors because they do mess up and the earlier you catch them the easier it is to fix. Things like good car loan repayments can also help in building credit beyond just using credit cards, which can be hard to get. In the end though, don't get too worked up about the score, just focus on building good habits of payments and not spending more than you earn.
EDIT 2: The character limits are craptastic lol
@WolfOfOne said:
Yes, but it's pretty darn lenient. Basically if you work for a tech or telecom company or work in the state of Oregon you're good to go. You can check out their requirements here: https://www.firsttechfed.com/meet/joinus.aspx. They also have a link to a large PDF listing all their partner companies which opens you up for eligibility if you work for one.
The crazy thing is that First Tech doesn't even have the highest rates, at least in the state of Washington. BECU (Boeing Employee Credit Union, which is now open to all WA residents) gives 6.17% on checking as long as your balance is under $500, SMCU offers 6.14%, Prevail offers 3%, the list goes on.
It's also worth mentioning that most credit unions typically have something setup where if you meet a few requirements (in First Tech's case it's use your debit card 12 times a month, enroll in online statements, and have a direct deposit going), they will add a feature to your account that allows you to use any ATM without a fee from them and they will pay the fee the bank charges to use it as well. This eliminates the whole "I don't use a credit union because ATMs are hard to find" reasoning. It also looks like Ally Bank and USAA offers something like this as well.
Edit:
@WolfOfOne: Over at SA there was a pretty big thread about why everyone should move out of a bank and in to a Credit Union ASAP and I learned quite a bit from reading most of it. I used to bank with Washington Mutual since they were the "little guy" and seemingly less evil than something like Bank of America. Sadly, good ol' WaMu went belly up when the economy went down the tubes and got bought out by JP Morgan Chase. Things stayed the same for a little while but then they started slowly merging all the WaMu accounts in to their own "versions" of the accounts we had. I learned the hard way that they monitor where you buy things and if you do a solitary purchase that's out of the norm for you they freeze your entire account until you call them and say that yes, it was you who made that purchase. Cute the first time, extremely annoying the 9th and 10th time it happened. When they added a $5/mo "maintenance fee" to my supposedly free checking account that's when I told them to go screw off.
Holy crap, 6.17%, that's better than my stock porfolio is doing o.o. Wish I worked for Boeing or lived in Washington :P Hmm, I prolly wouldn't qualify for First Tech since I technically work for myself. I'll have to look for other credit unions to see what I can get in on :).
@Helushune said:
Since we're on the topic of credit, it's worth mentioning that a credit card alone to "build credit" is only one point when it comes to actually building credit. You can have a credit score of 850, but it doesn't mean anything if you've never held any real debt when it comes to say, buying a house.
Especially with larger purchases--such as a house--banks will evaluate things such as your ability to manage your debt... and doing so requires that have debt. If you plan on buying a house, it's not such a bad idea to get a car that you have to make payments on, just to demonstrate that you can keep your finances in order.
@MAGZine: Yeah that's true.
If that's not an option, some people have suggested taking out a loan against a savings account and making payments using the loan money to pay off the loan. Will cost you interest in the end but it's an alternative to a car payment.