Your college years can be a great time to start building a good credit score—if you know how to handle a credit card wisely. But if you misuse your card, you may end up with a poor credit rating that’s going to haunt you during your post-college life.
To get the best rating, avoid these common credit card mistakes:
Many lenders offer special credit cards designed specifically for students, so do some shopping around before you decide which is the best for your particular situation.
Some factors to consider: The idea of earning rewards (airline miles, cash back, etc.) with a credit card can be enticing. Or, if you’re an ardent sports fan, you may love the idea that you carry a credit card with the colors and the logo of your favorite team. But how much are those perks costing you? Some of these specialty cards may come with an annual fee or other costs. Just make sure that you fully understand what you’ll be paying in fees before you decide. (CreditcardXpo.com offers several student credit card offers with no annual fee.)
The value of rewards cards to you may depend in part on whether or not you pay off your credit card bill each month. While it’s fun to dream about a special trip as you watch your airline miles add up over time, if you end up carrying a balance and paying interest on that card you might actually be in a better financial position if you use a card with a lower interest rate. If you add up the money you save by paying less interest, you might find it’s enough to buy an airline ticket (and not have to worry about blackout dates).
Lenders will love you if you’re a college student with a job that pays pretty well, and if you’ve established a good record of paying your bills on time. That means you may find that you get offers of more credit cards in the mail at least once or twice a week. Don’t fill out every application. It’s too easy to get heavily into debt when you’re using several credit cards. Limit yourself to one card to use as your primary card and another to use as a backup. Shred the rest of the offers.
It’s so tempting to splurge when you first get your credit card, but pulling it out until you reach your credit limit can hurt you in the long run.
One of the factors that goes into your credit score is your credit utilization rate—that is, how much you owe compared to how much total credit you have.
Lenders like to see credit utilization rates under 30 percent. That means if you have a credit card with a $1,000 limit, you should try to keep your balance under $300.
It’s easy enough to keep a running total of your charges for a billing cycle on your mobile phone. Perform a daily check on what you have charged; you’ll find it’s the easiest way to avoid overspending.
Suppose you ran up charges of $1500 on your credit card. If your interest rate on that card was 18%--and if you made only the minimum payment of $37.50 each month—it would take you almost 13 years (153 months) to get rid of that debt—and you’d end up paying more than $1,600 in interest. (That’s a long time to be paying for school books, pizzas and other things that you charged during your college days.)
Your creditworthiness takes a hit when you neglect to pay your bills on time. So will your wallet. A credit card issuer can charge you up to $25 for a payment that’s even a day late—and that fee can even go higher if you’re late with a payment more than once in a six-month period. That doesn’t even begin to address the detrimental effect that late payments can have on your credit score. So set your phone alarm, circle the date on the calendar—do whatever it takes to make sure that you make your credit card payment on time.