These are some tips that colleges students can use to use credit cards wisely and not get themselves head over heels in debt. Since credit cards are probably the commonest kind of credit that a college student uses, apart from student loans, controlling the credit card spending can be the difference that makes breaks your credit score. It is not uncommon for students to have a large debt in their credit cards by the time they pass out of college.
- An independent study has shown that the average balance on a student credit card is more than $2300.
- If you are someone who is going to carry this balance and/or make minimum only payment for a long time, you are going to be paying a lot more as interest to the bank.
- Remember, your student credit card probably has a higher interest rate than a regular credit card.
- Choose the credit card wisely – Do not take a student credit card just because they offer a free T-shirt or any other freebie with a card. Take the card if it offers you the kind of services that you want. Sought after features on a credit card for a student can be low interest rate, ability to break down purchases into interest-free installments, no annual fee etc. Under the new credit card rules, no bank or other credit card company may offer promotions like freebies mentioned above within 1000 ft. of the school campus. This does not meant that you may still not come head on with such offers. You may find it happening outside the eating joint or theatre or any other place close to the college campus where the students tend to hang out.
- Keep the number of cards to minimum — Avoid signing up for a student credit card just because it happens to come your way. While you are still in college one credit card should be sufficient for your needs. Even after college one or two credit cards serve the needs of most of the individuals. Every additional credit application for a new credit card can affect your credit score adversely. Worse, more credit cards give you more freedom to charge more during your student years when do not have an income or a limited one. If you are like most american college students, you still have a student loan to repay. Do not add to this debt. There is going to be plenty of occasions to use a credit card when you have a job and money to pay it off. Do not get yourself in a bad debt situation at the start of your life. It is never a good idea.
- Charged What You Can Pay off — The idea should be to charge your student credit card only the amount of money that you can pay off in full every month. Charging the credit card for a large sum of money and counting on paying the minimum every month can result in a prolonged debt where a large portion of the money that you pay will go towards interest and financial charges. While you’re still trying to repay the existing balance, you will be unable to use a credit card for an urgent need that may arise at any time.
This defeats one of the few positive purpose of a student credit card.
Many students tend to use their credit cards to pay for college tuition. Have you considered other sources for finance to pay for college expense? Federal student loans and even loans from private banks cost much less as compared to the whopping 18%-25% on student credit cards.
Another important thing here is that it is a good policy to maintain the balance below 30% of your total credit limit on your credit card. This habit will benefit your credit score the most.
- Use credit cards for what you need — Many students treat their first credit card as free money. Although more and more students are realizing the importance of managing their student credit cards responsibly, the impulse to use a credit card for non-essential buys is still strong. Remember, you do not have an income to pay back the debt. If you have an understanding with your parents as to how much you can charge on your credit card for leisure, with them funding the purchase, then no problem. Other wise differentiate between what you want and what you need.
Making an impulsive purchase on your credit card when you can’t afford it can result in you paying three to five times the amount of purchase. If you cannot afford the purchase and the likelihood is that you will end up revolving it from one month to another by making minimum payments. This will take a large chunk of the money that you paid towards the interest and the financial charges. You will also end up blocking your credit card for any other urgent use that might come your way. Unless you are a very organized person who uses credit card like cash and pace of the bill every month use the credit card on the case of emergency and need.
- Do Not Encourage Others to Use Your Credit Card — even if the person asking to use your credit card is a friend, do not encourage this practice. If your friend is asking to use your credit card because he cannot afford the purchase at that point of time than there is also a chance that he may not be able to pay you back when the time comes for your credit card payment. This may result in a late payment which will be reported on your credit report. The report of a late payment stays on the credit report for a period of seven years. This could be damaging to your credit score and a very negative mark for future lenders and other people who look at your credit report. Providing an explanation that it was not you who had made the charge on the credit card but a friend will only make you look like an irresponsible person who does not know how to handle credit cards.
Pay attention to these steps to make sure that you come out of college with an unblemished credit report and unscathed from your experience with creditors and credit card companies.