We ve all seen them, the credit card companies who come on campus and offer free pizza to anyone who signs up for a credit card. Is this bad? Could be, but it doesn t have to be. Credit is a tricky beast that should be understood and utilized. Using credit is a great thing if done correctly. Establishing a good credit score at a young age can make getting a car or home loan in the future much easier.
The first thing students must realize is that credit is not free money. Every time you use a credit card you are simply borrowing the money from a credit lender. Use your credit wisely and sparingly. We recommend only using credit if you have the means to pay your bill in full at the end of each month. This will ensure you don t get behind on payments or fall into any dangerous habits.
Pay on Time
The first and easiest way you can run your credit score into the ground is to make a late payment. Not only will you be issued a nice fee, but you ll negatively affect your credit, and that takes a long time to remedy. An easy way to ensure you stay on top of your payments is to not wait for the monthly billing period. Instead, access your account on line or go into your bank and pay off what s already on your line of credit. Obviously this is not always possible seeing as some people are only paid once a month, in which case we recommend careful budgeting to ensure you stay within your means.
Using credit is great if you are able to pay it off. Every credit card has a minimum payment, and you have the option of getting by just on that; however, this will only accumulate your debt and stick you with a nice fat bill in the future. To avoid this you should strive to pay off your credit in FULL each month. Wipe that slate clean. This will do one of two things: Build your credit score and keep you on good terms with the credit card company, and second, save you a lot of heart ache in the future.
Don t use more than you need to
It is important to have a line of credit that fits you. Some people only need a $500 line of credit, while others may need $5,000. Both high and low lines of credit have their advantages and disadvantages. If you re credit limit is only $500, chances are good you re not going to go crazy with your credit card and buy a new car. Then again, the lower your line of credit, the longer it will take to build credit. On the flip side, if you have a $5,000 line of credit, you may be left with a false sense of richness. If you only make $1,000 a month, you probably can t pay off a maxed out $5,000 line of credit.
Which brings up our next point; no matter the size of your line of credit, it is never good to max it out. This also will stick you with a fee, and will do no good for your credit score. We recommend utilizing less than half of your line of credit at one time, and then paying it off as soon as possible.