According to a survey, the average freshman student has more than $1,500 worth of credit card debt. That staggering figure was revealed by Nellie Mae in 2005. Students have a very substantial amount of debt even before they graduate, and become a member of the workforce.
This situation is dire, yet much can be done so this does not happen. Just by teaching students to use their credit cards responsibly, they can protect themselves from the threat of bad debt and in turn build up a solid credit history. In this article, we have presented simple but valuable steps on managing a credit card, especially for young people and college students.
Don’t fall for credit cards with introductory rates. A credit card with a reasonable interest rate that would last is a better option than a credit card with zero percent introductory rate that is bound to skyrocket after only six months or so. Since it will be your first time, you need a reliable credit card – one that can help you establish and maintain a good credit history.
Know what you have to pay for. Aside from a low interest rate, be sure to check out what the other fees are as well. Check the annual fee, late penalty, over-the-limit fee, and other transaction charges that you may incur once you use your credit card.
Credit card rewards. If you plan to get a student credit card with rewards, be sure that you will be able to pay completely every month. Otherwise, you may get charged with a high rate of interest. Better yet, if you’re not sure whether the rules of the reward program fit your lifestyle, go with a non-reward credit card with a low interest rate.
Stick with one credit card. Many young people get at least two or more student credit cards, thinking that more accounts would boost their credit rating. But achieving a high credit score does not depend on the number of credit cards you own. On the contrary, a good credit score depends on how well you can manage each account.
Thus, even if you own just one credit card, if you use it regularly and you are consistent in submitting your payments on time, you can surely build good credit and make a good impression to future creditors.
As a student, it is strongly recommended that you stick with one account to avoid the risks. First, having multiple credit cards may encourage more spending, since you can always charge it to one of your credit cards and pay at a later time. Second, managing different credit card accounts can prove to be difficult especially if you have incurred a balance on each card. Also, paying off your debts can become a burden and if you fail to pay on time, you will be charged with additional fees on interest rate and late penalty, charges. All these trouble can be avoided by focusing on just one card. Additionally, student credit cards often have very high interest rates (that’s what you usually get when you have little or no credit), so stacking up those credit cards also means stacking their interest rates against you.
Spend wisely. Ultimately, avoiding the bad credit trap will depend on your own spending. Before charging purchases to your student credit card, see to it that you will be able to pay on time. Always remind yourself of the possible consequences. And if you’re not certain whether you can pay on time, then do not charge it on your credit card.