Do's and Don'ts of College Credit Cards
Your credit score has a profound impact on your life. A bad credit score can result in trouble getting the loans, buying the car, and getting the apartment you want. It could affect your employment. And utilities, phone companies, and others may require a big deposit before letting you buy a cell phone or turning services on. In general, life is tougher for those with bad credit histories—and many services cost more.
The actions you take in college have an effect on your credit history—and many students graduate with bad credit scores simply because they didn’t know how to build up a good credit history beforehand. Here are some tips to ensure you don’t make that mistake.
Don’t avoid having a credit card altogether
If you’re trying to be conscientious about your money, it can be tempting to just avoid all credit cards. But this isn’t the best tactic either. Your credit history is built from your past activities using credit cards—and given a score. A wide variety of people—everyone from your landlord to your car dealership—will use that score to decide whether to approve your applications. It’s better to build a strong credit history in college than to graduate without any history at all.
Don’t sign up for any card that offers a gift
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Use your credit card to your advantage. Take out only one card, use it for manageable purchases, and pay off the balance every month—and you’ll have your credit card working for you instead of the other way around.
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Credit card companies are known for targeting college students with giveaways—everything from free T-shirts and coffee mugs to electronics. But don’t sign up for a card just because it’s giving cheap gifts away. Read the terms. Choose a credit card with low interest rates and fees—not the one with the coolest free gifts.
Do stick to only one card
As a broke college student, it can be tempting to sign up for credit cards at stores just to get the 10% discount—as well as taking every card company up on their offer for a free T-shirt. But most college students don’t realize that their credit score drops with every credit card they open. And the more credit cards you have, the harder it is to keep track of how much you’ve charged and who you’ve paid. It’s best to stick to the fewest number of cards possible when managing your money.
Charge only what you can pay off now
If you pay by month for something you can’t afford to pay for up front, you’ll end up paying more. That’s how credit card companies make money. Many college students use cards to make purchases they couldn’t otherwise afford—but that kind of buying behavior can lead to debt problems quickly. Only use your card to buy things you can afford.
Don’t carry a charge over to the next month
Interest accumulates for every dollar you don’t pay off at the end of the month—and credit card interest rates aren’t known for being reasonable. In addition, minimum balances are often designed to keep you paying indefinitely—so the bank can collect the most interest possible over a long period of time. Always pay off your entire balance at the end of the month and avoid any interest fees and late charges.
Don’t take out a cash advance
Some credit card companies encourage students to use their cards as debit cards—advertising cash advances as “free money.” But those advances are anything but free. You’ll usually pay a 2-4% charge on whatever you take out, plus other finance charges. And if you have other charges on your credit card already, the company will put all your payments toward those first—letting the higher cash advance interest accumulate. The bottom line? If you don’t already have the money in your checking account and can’t access it with a debit card, don’t use the credit card as an alternative source for cash.
Credit cards can be difficult to deal with—especially for college students who have no prior experience using them. Credit card companies do everything to get the most money out of every account—charging interest rates and fees for late payments, over-the-limit charges, and cash advances. But you can use your credit card to your advantage. Take out only one card, use it for manageable purchases, and pay off the balance every month—and you’ll have your credit card working for you instead of the other way around.
Student Credit Card Debt - YouTube.com
Sources
Sources:
Forbes.com: New Credit Card Choices for College Students
Distance-Education.org: Student Credit Cards: If You’re Going to Do It, Do It Smart
Distance-Education.org: Five Steps to Killing Your College Debt
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Excellent advice! I wrote about the same issue this week, but I have some information on the new credit card laws intended to protect students along with ways they may not.