College students are a prime target for credit card companies, and for good reason. They have little cash and a lot of expenses. Establishing a credit history is certainly important, as long as college students know how to properly use credit and understand how misuse of credit cards can hurt them in the long run.
Credit Card Tips for College Students
It's true that having a good credit history will help when you're renting an apartment, buying a car, and applying for a new job. Unfortunately, however, most college students have no idea how to handle credit. That being said, it is a good idea for students to establish a solid credit history. The following are some tips that will help you establish good credit without getting into debt:
- Credit cards are NOT for pizza and beverages.
- Make EVERY payment on time.
- DECLINE offers to increase your credit limit. There is no need for a $5,000.00 limit when you are living in dorms or enrolled in a meal plan.
- If you already have a balance on your credit card, pay MORE than the minimum monthly payment. A balance of just $1,000.00 at 15% interest will take you over SEVEN YEARS to pay off and will cost you $612.00 in interest.
- Do not count on family members to bail you out.
- If you cannot pay off your balance in full when you get your next statement, STOP CHARGING!!!
- Carrying a balance allows you to establish a payment history, but there is no need to carry one for more than a few months. It is not a green light to max out the card. It is important that you use your card wisely, make meaningful payments for four or five months, and then pay the balance in full. Whether you choose to carry a balance or not, keep it low enough that you can pay it in full at any time.
- Remember that you'll likely have to start paying down some hefty student loans six months after graduation. Those of you moving on to grad school will have even more bills and loans to deal with.
Credit cards can be a very valuable tool for a college student. At this point in your life, you probably haven't established much of a credit history. Credit cards can help you to create a strong one. This can only happen if the tool is used properly.
To begin, establish a budget for yourself. This will help you to determine your expendable cash, or allowance, for the month.
Once you have determined your allowance, there are two very different ways to use your credit, depending on your financial personality.
If you are a good record keeper, you may wish to use your card for your everyday purchases, always staying within your monthly allowance. You would pay the balance IN FULL each month so that you avoid building debt. The goal here is to use your credit wisely so that you establish a positive payment history. You would keep a journal of your day-to-day expenditures so you do not to go over your monthly allowance. This will help you to master budgeting.
You may want to make one or two purchases that you can pay off IN FULL at the end of each month. This will help you to establish a positive payment pattern. Also, it is important to begin organizing your finances. One of the most important factors in being financially responsible is organization. Begin keeping a journal of your day-to-day expenditures. When you feel as though you are comfortable, graduate yourself to using the method described above in Personality A.
It is important to understand that using your credit cards responsibly can help you, and using them improperly can hurt you. Every day, more and more college students are facing financial anxiety because of overspending.
By learning to properly manage credit, you will be well on your way to establishing a good credit history and a bright financial future.