Welcome to the last post in this month’s financial literacy blog series! We’ve previously looked at student loans basics and interest rates, and covered budgeting in college. Today, I want to tell you a little bit about credit and break down student credit cards. While credit cards are scary and troublesome for many people out there, they don’t have to be. It’s all about being responsible!
Credit — What is it?
Credit can be summed up as a person’s reputation with money. It’s used by banks, landlords, and even employer’s to judge a person’s financial reputation. This means the better credit you have, the more leeway you have when getting a car, house, student loan, or job. Having and keeping good credit can save you money on those big purchases in your life, not to mention saving you the stress that often accompanies credit issues!
What’s in a credit score or report?
How your credit is judged can vary, but it’s typically a sum of these factors:
- Length of credit history – This not only includes the age of your accounts, but also takes into account time since your latest activity in that account. This means that having an open credit card that you don’t use might hurt you more than a credit card you use frequently for small purchases that gets paid off in full every month.
- Payment history – This is exactly what it sounds like, a history of all of your payments, if any were late or delinquent and by how much. It goes without saying that you should pay off your bills every month and don’t let things slide! Typically, a few days late on a credit card won’t hurt you, it may not even get reported by your bank — But don’t test it. Pay on time, every time.
- Amounts owed – This category checks out your total amount owed, amount by type of account, and even the ratio of what you owe.
New lines of credit – New lines of credit are not only recently-opened accounts, but also any recent credit inquiries. If you have a lot of credit inquiries or newly opened accounts within a certain amount of time, this may have a negative impact on your credit.
- Types of credit – If you have $20,000 of credit card debt, this will be judged differently than $20,000 in student loans. The types of accounts (and even how many of each) play a part in this judgement.
All of these factors work tother and comprise your overall credit rating.
The 411 on credit cards
Well, now that you know what your credit is, let’s decipher the highly debated topic of student credit cards. Credit cards get a lot of flack for causing piles of debt and ruining people’s credit. However, credit cards aren’t inherently dangerous, and they can actually HELP your credit if you use them right. The key is, don’t abuse the card. It’s not free money, it’s you’re money, and you’ll owe it, so only buy what you can afford right now. By doing this, and paying off your full balance every month, you’ll avoid high interest charges and fees and build your credit.So you see, credit cards can be great for your credit and your finances if you use them responsibly.
This concludes our Financial Literacy Blog Series. With any luck, you’re now well on your way to becoming a financially sound adult! In case you missed them, here are the previous post from the series:
5 Most Recent Student Loans Blog Posts:
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