College students will be testing the waters of credit card usage as they enter adulthood. For the first time, they’ll be swiping plastic for basic purchases, setting the groundwork for their futures as responsible adults. While this is an excellent way to build credit, it can lead to disastrous results. After all, students also have a packed calendar of academic and social commitments — so it’s understandable that smart financial planning doesn’t typically rate highly on their list of priorities. But careless spending can quickly add up, and it can take years to undo the damage of high-accrued credit card balances. Learn about how you can use a credit card safely and responsibly with these six tips.
1. Look for a Card That’s Student-Friendly
More than ever, credit card companies are catering to students in search of convenient and stress-free payment options. Do a little research on credit cards that are geared toward college students. You’ll want to look for a card with no annual fee or other hidden fees, as well as low interest. Although you may encounter more than one appealing offer, avoid the temptation of opening too many cards. One card is ideal for most students. It offers you the chance to track your spending and plan for due dates without becoming too overwhelmed.
2. Charge What You Can Afford to Pay Off
Be honest with yourself about how much you’ll be able to pay off every month, and set an appropriate limit. The best policy is to only use your credit card for purchases you can easily pay off that month. That way, you’ll avoid racking up debt that will only snowball in the coming months. If you have already reached the limit you established for yourself that particular month, leave the card at home and stick to cash for the time being.
3. Pay on Time, Every Time
Late payments can quickly wreck your credit score — and it can be difficult to recover as a nascent credit card user. This is the single most important part of responsible card ownership. When you first sign up with the credit card company, make it a point to set up an auto-pay option. You can usually choose the amount and the date that the payment will be withdrawn from your account. Take advantage of all the tech tools now widely available with most card issuers. It’s a great idea to download the credit card’s app onto your smartphone and opt-in for alerts about approaching due dates. The more reminders you can set for yourself, the better.
4. Stay Well Below Your Credit Limit
A good rule of thumb is to make sure your credit card balance never exceeds 30% of your credit limit. For instance, if you have a $2,000 credit limit, you won’t want to have an unpaid balance greater than $600 at any given time. If you are already only spending what you can afford to pay off each month, sticking to this tip won’t be a problem.
5. Encourage Responsible Card Ownership in Your Friends
Once you have adjusted to using a credit card responsibly, encourage your friends and classmates to shop around for a similar card. When more of your friends have plastic in their wallets, you are less likely to be the one offering up your card for nonessential purchases. One example: College students commonly frequent restaurants together. If you’re the only person there with a card, you might be stuck picking up the tab, while your friends fork over cash to cover their share of the bill. This can be tricky because while you will end up with more cash in your wallet, it won’t necessarily help you pay off the balance at the end of the month.
6. Prepare an Exit Strategy
If you run into some difficulties and can’t pay your balance in full, make sure you’re at least paying the minimum amount due. You will end up paying more in interest, but that’s better than accruing late fees. And if you decide that you aren’t ready to use a credit card, you may want to shelve the plastic for a few more years. Work toward paying off what you owe and close the account.
As you comb through college student credit card offers, make sure you’re also thinking about your credit report. Now that you have a credit card, you’ll want to check in on your credit report regularly. The numbers and terms on a credit report can be confusing to read, and it can be even tougher to figure out if all of the information reported is accurate. If you need a helping hand sorting out what’s on your report, reach out for a free consultation with the Ovation Credit team.