Six rules for college students using credit cards
You'll be in a desirable position when you begin your career if you can establish a solid credit history before you graduate. You won't need a co-signer in order to rent an apartment. Because of your improving credit score, you might even be able to avoid paying a security deposit.
Credit cards do, however, have a dark side. Compound interest is applied to balances carried over from month to month on credit cards. If you don't have a spending plan, it's simple to get into debt.
Rule #1: Lay the groundwork for your finances
Your spending tracking system and budget together make up your financial foundation.
You need to keep track of your expenses, even if you only have a few. Your financial foundation is set up to support responsible credit card use. Many people believe that having a budget will make life monotonous and overly structured. Not at all true.
A budget is liberating, not constricting. You can use your money to buy the things that are most important to you.
Rule #2: Select the Proper Credit Card Type
It is possible to apply for a student credit card while in college. There are many great options available. But keep in mind that under the Credit CARD Act of 2009, anyone under the age of 21 must provide proof of sufficient income in order to make purchases with a credit card. You will require a co-signer if not.
When asked what features they'd want in a student credit card, respondents to the survey indicated that a card with no annual fee would be the most desired feature. An additional expense is the last thing a college student needs, but fortunately, many student credit cards have no annual fees.
Consider a secured credit card if you are denied a student credit card. Only 34.4% of the students polled are familiar with how secured credit cards operate.
The small deposit needed for a secured card reduces the risk for the credit card company. You are given a credit card you can use to make purchases. Until you close your card, the deposit remains in the account. You will receive your deposit back if you operated the card responsibly.
Rule #3: Make prompt payment of all bills
Your FICO score is 35% based on your payment history. You can build good credit by paying all of your bills on time. And by all of your bills, I don't just mean the one for your credit card.
There are a tonne of free financial tools available to assist you. You will be aware of the status of your expenses, including the dates by which bills are due, if you have your financial foundation in place. But for an additional measure of security, you can also set up email and text reminders.
Rule #4 Don't carry a balance
Survey participants were asked what it meant to have a credit card balance. Only about a third are aware that it entails making monthly payments that are less than the full amount due.
What would happen if you didn't pay the entire balance due was the subject of another survey question. Nearly half of people comprehend that your balance would rise each month.
Rule #5 Watch Your Credit Utilization Ratio
Your credit utilization ratio measures how much of your available credit you have used compared to how much credit you still have. 30% of your FICO score is based on how you use your credit. This is why having a large credit card balance can harm your credit score.
30% or less is the ideal credit utilization rate. The utilization ratio of all of your credit limits is taken into account by scoring algorithms. However, they also take into account each card's utilization rate. Therefore, you cannot max out one of your cards and have your score remain unaffected.
Rule #6 Review Your Credit Report
Visit this website, AnnualCreditReport, to get your official, free annual credit report. Review a credit report from one of the three main credit bureaus, Equifax, Experian, or TransUnion, every four months.
Check the report for inaccuracies or indications of fraud. For instance, it's a warning sign and possibly an indication of identity theft if you discover a new account that you didn't open. Follow the instructions on the Federal Trade Commission's website to file a report if you have any suspicions about credit card fraud or identity theft.
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