If you choose to study in the United States, you'll likely be introduced to new cultures and habits that are different than your own. Even everyday items you use at home may be used or viewed differently in the U.S.
Money is no exception; you may be surprised to see how Americans value and spend theirs.
Credit cards are accepted almost everywhere in the world, but there are some differences depending on where you’re using them. Some cultures only use credit cards to finance large purchases, while others may prefer other methods of payment entirely.
Regardless of your background, it’s important to learn how credit works in the United States so that you can use it responsibly while studying abroad.
Why Do Americans Use Credit Cards?
While cash is still king, 86% of Americans use cards for at least some of their purchases. It’s common to see Americans use credit cards for all kinds of things, large and small. Reasons for this include convenience, credit card rewards, plus the opportunity to finance purchases over time and build credit history.
Credit cards are convenient because they’re quick, safe, and you usually don’t have to pay them off right away. As long as you pay your monthly statement in full before your bill is due, you won’t be charged interest on your new purchases with most cards. This is particularly helpful if, for example, you need to make a purchase now but won’t get paid until next week.
Similar to credit cards, debit cards are a popular method of payment in the U.S. and are also used for convenience. Debit cards can be a good alternative for those who can’t get a credit card or aren’t ready for one. But if you only use a debit card, you’ll miss out on some security protections and the possibility to earn rewards that credit cards can provide. Debit cards won’t contribute to your credit history, either.
Many credit card issuers offer rewards for using their cards. There are certain cards that offer cash back, travel points, and other benefits. A recent study showed that 39% of millennials are most likely to use a credit card solely for the rewards.
Americans who use their cards responsibly and pay their bills in full each month enjoy the benefits provided without paying interest or late fees. If you spend more than you can afford just to earn rewards, you’ll quickly learn that the interest accumulated is generally more expensive than the value of any points or cash back you’d earn.
Financing a Purchase Over Time
Credit cards are a revolving loan, which means you have an open line of credit to spend and pay back over time. If you don’t pay your entire statement balance before it’s due, the card issuer will charge interest in exchange for the convenience of making smaller payments over time.
Many credit card users assume that the minimum amount due is all you need to pay monthly. However, paying the minimum due is only going to help avoid late fees, and you’ll be charged interest on your remaining balance.
While credit cards are a convenient way to finance large purchases, they’re also an expensive one. The average credit card interest rate in the United States is over 17%, with some cards going up to an APR of 25% or higher. Many credit cards offer an introductory 0% APR period. As long as you pay off the card balance before this introductory period ends and always pay at least the minimum on time, you won’t pay interest on your account.
Building Credit History and Credit Scores
Credit scores are a major part of American finance culture.
The term "credit score" is a bit misleading, since you can actually have multiple credit scores. These scores are determined by a variety of data collected and reported by the nation's consumer credit bureaus. You can have credit scores even if you don’t have a social security number!
Your credit scores are important in the United States. Without credit scores, you may find it difficult to get approved for credit card accounts, qualify for cell phone plans, or even rent apartments, and this could prove frustrating.
Credit history simply refers to your past behavior with credit and debt repayment. It comprises things like the credit accounts opened in your name and your amounts owed, and this information can be found in your credit reports.
Adjusting to Credit Culture in the United States
When studying in the U.S., keep in mind that you’ll be starting from scratch when it comes to your credit history. If using credit is important to you, or if you intend to remain in the U.S. long-term, try to develop good credit practices ahead of time.
Understand the Risk Inherent in Credit Use
First, it’s important to understand that credit cards and other loans are serious financial tools and they’re not for everyone. If you’ve never had a credit card before coming to the U.S., they can be tempting to misuse. An MIT study found that people spend more money when using a credit card than when using cash, regardless of what they could afford. You should take the time to consider whether you need a credit card and learn how to use credit cards responsibly.
There are credit products designed for those who are new to American credit. If you don’t have a Social Security Number (SSN), you can apply for an Individual Taxpayer ID Number (ITIN), which a handful of major card issuers accept. Cards designed for international students, such as the Deserve Edu Mastercard, make it easy to apply without an SSN or ITIN. This student card takes into account your education history and future earnings potential, even if you have a thin credit file.
Another option is a secured credit card. With a secured card, you place a refundable security deposit on your account, which becomes some or all of your credit limit.
Pay Your Balances On Time, Every Time
Your payment history accounts for 35% of your FICO credit scores. You should learn to understand your credit card bill and, ideally, pay the entire balance in full. Paying only the minimum amount due will still count as an on-time payment, but, as mentioned earlier, your remaining balance will still incur interest. Over time, you’ll see an improvement to your credit scores because of your on-time payment history.
Upgrade Once You’ve Built Credit
If you've spent a year or two building credit in the U.S., you may feel ready to upgrade to a new card with rewards, perks, or a higher credit limit. Take your time and understand the risks and benefits of opening new accounts. When you feel comfortable about your credit history and your ability to handle a new card, you can seek out better offers that offer cash back or travel rewards.
Patience Is Key
Adjusting to another country’s cultural norms can be difficult, especially if it requires you to rethink your financial habits. If you’re planning on being in the U.S. for a long time, it’s important to understand credit. As long as you’re patient, responsible, and willing to learn, credit in America can be used to your advantage.