If you are early in your college career, you are likely dealing with many new responsibilities that can be nerve-wracking at the onset. One chief priority that comes to mind is the reality of learning to manage your own finances. To alleviate some of that confusion and stress, today’s article will focus on a common financial tool that most financially conscious people need to have a grasp on how to utilize: credit cards.
You may or may not have used a credit card before coming to college, but either way, it’s a good idea to brush up on tips on how best to use credit cards. Mediafeed.org tackles this task in their article “7 smart credit card strategies for college students.”
- Select the right card to meet your needs.
College students often have not had the opportunity to build up their credit history much, limiting the type of credit cards they can qualify for. When searching for a first-time credit card, a student credit card is your best bet, as they are specifically designed to help young adults access a credit line. Many banks also offer a student version of their credit cards, so it might be a good idea to see what your bank offers.
While looking at student-specific options, try to identify one that doesn’t charge an annual fee. It should also offer student-friendly tools and terms, such as the ability to view your free credit score each month and/or rewards like cash back and travel points.
- Spend wisely.
Beware of an overinflated credit card balance because debt is a load that can follow you for many years to come. According to a September 2022 survey conducted by U.S. News, 46% of college students report having credit card debt, and 27% of those students reported their credit card debt exceeds $2,000. To avoid this, consider using your card for covering necessary items and expenses, such as school supplies, and cash and a designated budget for all discretionary spending.
Especially if you struggle with spending within your budget, it isn’t smart to use credit cards to pay for fun things like clothes and fast food unless you know that you have the funds to pay it off when the bill is due at the end of the month.
Your credit limit will most likely start off low on your first card, but you should fight the impulse to have multiple cards. One card is usually sufficient for students, and having multiples can lead to overspending and confusion on how much you owe. Avoid random department store credit cards as well, as their terms are often sketchy at best, and having too many credit cards can damage your credit as well.
- Give yourself some credit: Credit cards for building your credit.
Building a solid credit history is essential for many financial situations, such as being approved for an apartment or obtaining a car loan. Responsible credit card use early on helps with that. So, use your credit card and pay it off on time to invest in your future.
- Pay on time every time.
The simple act of owning a credit card isn’t as important as how you actually use it.
Payment history accounts for 35% of your credit score, so your score will drop if you are over 30 days late on paying back your credit card balance. Setting up text or email notifications to remind you when the bill is due or almost due can be helpful.
The best way to keep your balance in check is to pay the balance in full every month to avoid interest fees and other additional expenses. If that is not possible, the next best thing is to at least pay toward your credit card bill as much as you can afford to until you can make up the remainder. Don’t fall into the trap of paying only the minimum every month, as that is a surefire way to let your credit balance snowball into longer-lasting debt.
- Continually check your balance.
If you are working to improve your credit score, be mindful of how your credit card balance stacks up against your total credit line. Even if you always pay on time, a high debt load can be detrimental because utilization- the amount of available credit you are using- accounts for roughly 30% of your credit score. Standard practice advises staying within 30% utilization. So, if you had a credit limit of $2,000, for example, you would want to shoot for less than $600 in balance at all times.
It is also a good idea to check your credit card transactions regularly to make sure there are no fraudulent charges there. If you identify a fraudulent charge, report it to your credit card company immediately.
- Avoid cash advances, if possible.
Cash advances can be tempting if you are low on funds but try to avoid them if you can. If your card allows them, they have a higher interest rate that is separate from your normal APR. Basically, they cost you much more than the initial withdrawal amount.
- Credit Monitoring is a must.
Make a point to use the tools your credit issuer offers, such as your ability to see your credit score and free credit monitoring tools. Check out your credit report as well, as you are entitled to see one per year from each of the three major credit bureaus (Experian, Equifax and TransUnion) using AnnualCreditReport.com. It is a good idea to look at all three, as they can differ slightly.
The most important thing to remember with credit cards is that they are tools that can help you or harm you depending on how responsibly you use them. Happy safe spending!
For more information about fiscal responsibility, keep an eye out for periodic financial advice seminars, resources and more provided by Life U’s Financial Aid office.
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