Having good credit habits is a crucial part of adulting and securing a good financial future, but the pit of credit card debt is easy to fall into, especially if this is the first time handling big amounts of cash. So, here is everything you need to know about responsible credit card use in college.
The importance of good credit
Every time you use a credit card it ends up in a credit report that then gets graded with a credit score. Lenders, employers, landlords and insurance companies all use your credit report or credit score to decide whether to approve your applications and at what cost. Your credit score will also determine your interest rate on loans and credit cards, which significantly affects how much you’re paying for large purchases. It even affects how much you pay for home and car insurance.
Having a lot of debt will make negative marks on your credit report and lower your credit score. This can keep you from getting loans on an apartment. An employer may not hire you or a landlord may ask you to have someone else co-sign the contract.
Having good credit habits is incredibly important especially if you are just starting on your own and will always help you in the long run. So, weather you have a good or bad credit history depends on you and how you use your credit card during your years in college.
Developing a healthy relationship with your finances early on is the best way to set yourself up for success as you graduate college and find yourself thrown into a world filled with student loan debt, mortgages and balancing multiple credit accounts. So, to make it easier here are a few habits you can start now that will carry you through graduation and beyond.
Only charge what you can afford to pay
You’ve probably assumed credit cards were meant for charging things you can’t necessarily afford right now but will probably be able to afford later. Using a credit card when you can’t afford to is the quickest way to build a balance you can’t repay.
Having one credit card is enough
While in college it’s better to keep your cards to a minimum. Every new credit card application causes a drop in your credit score. Plus, the more credit cards you have, the higher the risk of you taking on too much credit card debt.
Always make more then the minimum payment
Sometimes, overspending happens. When this happens, pay off the balances as soon as possible to keep interest charges at a minimum, and always pay more than the minimum required payment on your statement.
Don’t let the cards choose you
Unless you’re sure it’s a good deal, don’t sign up for a credit card just to get a free t-shirt or coffee mug. Read through the terms of any credit card agreement you receive. Check the fees and interest rates, compare them to other card offers you’ve received. Then, select the credit card that’s best for you. The best student credit cards have no annual fee, a low-interest rate, and a low-credit limit.
Know your credit score
Most credit card issuers have built-in credit monitoring that gives you insight into your credit score each month. While small fluctuations of your score aren’t something to worry about, large dips can be a sign of unhealthy spending or errors on your account.
Pay your balance in full every month
Getting the habit of paying off your balance when you get the bill will avoid you carrying forward credit card debt. This way you’ll only pay for what you purchased, not the extra fees companies charge when you don’t pay in full.
Don’t lend money to others
If you let someone else use your card, you’re responsible for paying the charges whether they pay you back or not. Don’t let your friends and family put you in a bad financial position.