Top 8 Student Credit Card Tips
If you're a college student (or ever were), then a student credit card was almost definitely a big part of your life. Either you have one, have friends that incessantly talk about them, or are inundated by card representatives who seek to exchange some personal info of yours for a free T-shirt. Since you have to deal with credit cards so frequently, here are some tips on how to effectively use them
- How you use your card now affects your financial future (credit score) – If you have a large balance that is maintained by only making the minimum payment, you'll be considered a “credit risk” by the FICO® (who sets the credit score criteria) and your credit score will go down. This affects buying a car (higher financing rates) and even insuring your car (higher financial risk = higher payments). Keep this in mind if you are racking up big bills without the cash to quickly pay them back. Read more about your credit score.
- Don't carry a balance – When possible, avoid carrying a balance. As stated above, it'll keep your credit score lower than average and will also increase the amount of money you ultimately have to pay. This is due to the wonderfully painful phenomena of compound interest, which can severely increase your balance, even if you no longer use the card.
- Watch your interest rate – The higher this is, the more your balance will increase each month. If you can begin with a 0% rate or transfer to a credit card that will offer a similar low rate, it is certainly recommended. Just be careful of what that low rate becomes, once the initial offer vanishes.
- Consider rewards cards – For those who do pay their bills, it's worth looking into cards that provide cash back, miles, hotel points, or a similar bonus for using your credit card on a regular basis. Just be wary of annual fees, as they can offset any bonuses you may earn.
- Prepaid cards aren't ideal – If you think you'll have a lot of difficulty paying off your balance, a prepaid card provides you with plastic, similar to a gift card you may get at a retail store. However, it doesn't improve your credit, it won't do much for you in emergencies, and there are very rarely options for rewards.
- Carry cash, too – Studies have shown that consumers spend less when they are using cash instead of plastic. So, you may wish to leave your Visa at home when you hit the mall.
- Debit cards aren't always best – The nice part about debit cards is that there is no balance, and your money is pulled directly from your bank account. The negatives are that it doesn't allow you to improve your credit and if it gets stolen, thieves have direct access to your money – even though card companies say there is no liability.
- Use the telephone – Getting hit hard by your APR? Give your card company a ring and ask them if they can lower your rate. Have to make a late payment? Clear it with your card so you won't incur late fees. Card companies want to keep you as customers and are more than willing to do favors for you, periodically. In turn, they hope that you slowly (but surely) keep your balances with them.
Hope these tips help you build your credit while keeping your card balance in check. Happy (and safe) charging!