A recent report by Sallie Mae reveals that the average college student has more than four credit cards with a combined balance of more than $3,000. Some students have as much as $7,000 in credit card debt. Graduating with that much credit card debt can put a damper on your plans for entering the real world.
Why Good Credit is Important
Your history using credit cards is compiled into a credit report and graded with a credit score. Lenders, employers, landlords, insurance companies and even utility service providers all use your credit report or credit score (or both) to decide whether to approve your applications and at what cost. See Credit Report and Score Overview.
Having too much credit card debt can leave negative marks on your credit report and drive your credit score down. If you have a history of missing payments, it will also decrease your credit score. This could keep you from getting a loan or apartment. A landlord may require you to have a co-signer. An employer may not hire you. Utility services may require a hefty security deposit before turning on services.
Having a good credit history is important, especially when you're just starting out on your own. Whether you have that good credit history depends on how you use (and don't use credit cards) during your college years.
College Credit Card Tips
Don't let a credit card choose you. Unless you're sure it's a good deal, don't sign up for a credit card just to get a free t-shirt or coffee mug. Read through the terms of any credit card agreement you receive. Check the fees and interest rates, comparing them to other card offers you've received. Then, you select the credit card that's best for you.
How to Choose a Student Credit Card
One credit card is enough. Though you may be tempted to apply for every credit card that comes your way, it's better to keep your cards to a minimum at this point. Every credit card application you make causes a drop in your credit score. Plus, the more credit cards you have, the higher the risk of you taking on too much credit card debt.
How Many Credit Cards is Too Many?
Only charge what you can afford to pay. Even though you may be tempted to use a credit card when you don't have the cash, but that's the quickest way to build a balance you can't repay. When you pay only the minimum payment, you get charged a finance charge that makes it take longer to pay off your balance. You could end up paying $100 for a $20 shirt.
Pay your balance in full every month. If you get in the habit of paying off your balance when you get the bill, you'll avoid carrying credit card debt. Plus, you'll only pay for what you purchased, not the extra fees credit card companies charge when you don't pay in full.
5 Reasons to Pay More Than the Minimum
Don't even think about a cash advance. They're not as attractive as they seem. You'll pay a 2%-4% cash advance fee plus finance charges on the amount you withdraw. If you've also made purchases on your credit card, all your payments will go toward those purchases before ever putting a dent in the cash advance which has a much higher interest rate.
Stay under your credit limit. Not only are over-the-limit fees expensive, they are also hard to get rid of. Because of the way billing cycles and payment dates fall, you might think you're paying your balance under the limit, but finance charges and fees take it right back over. The best bet is to keep charges within 10%-30% of your credit limit.
5 Ways to Avoid Over-the-Limit Fees
Make your friends get their own credit card. If you let someone else use your credit card, you're responsible for paying the charges. After all, it was your signature on the credit card application, not your friends.
Don't be afraid to close the card. Normally, I don't tell people to close their credit cards because of the damage it could do to their credit scores. But, if you don't have the money to pay a credit card balance and you know you'll be irresponsible with your card, it's better to close the account than to ruin your credit score.
Credit card companies don't give you a manual on using credit cards the right way. In fact, they'd rather you make costly mistakes so they can charge you more interest and fees. Follow these tips to keep you debt free and credit worthy.
