If you’re using a credit card to pay for your college application fees, and will have to borrow a significant amount of money during your undergrad years, it’s important to start developing good money management skills now so you can avoid the “credit card crunch” that plagues many students when they first leave home.
While credit cards will help you build a good credit score, they can also land students in a hefty amount of debt if unchecked. Here’s how to use them responsibly and wisely.
1. Don’t just go with the first card you get in the mail.
College dorm mailboxes are flooded with credit card offers, and credit card companies offer students just about the worst APR rates around. Check with your school if there is an associated Credit Union on or off campus that will offer you a better deal. Chances are there is!
2. Read the fine print.
So you have a card with a low APR. That means you don’t have to worry, right? Wrong. Card companies also have hidden fees and other tricks up their sleeves to make sure you pay more in the long term. Read everything before you sign up so you know exactly what you’re getting yourself into.
3. Pay it off. Every month.
This is the #1 most important credit card rule to remember. Credit card companies make their money on interest. If you never pay off your balance, then you continue to spend more than the cost of the initial item as long as your balance carries.
Only charge what you can reasonably pay off at the end of the month. If money is tight, at least make a little more than the minimum payment, and talk to your parents immediately if you feel like it’s getting out of control.
4. Never open more than one card.
In reality, you won’t need more than one debit and one credit card during your undergrad years, so once you’ve chosen which card to go with, plan to have the same one for 4 years. In addition to building your credit, it’s easier to keep track of your balance if it’s on one card, rather than spread across 2 or 3.
Once you graduate and decide to get fancier cards like mileage or reward cards, don’t cancel the original one since that will shorten the length of your credit history and ding your credit score. See if you can upgrade it instead. Keep your credit score high for the best possible interest rates on auto and home loans!
5. Cut up any “blank checks”.
Credit card companies like to send students “blank check” cash advances. They look like oversized checks, and all you have to do is fill them out and deposit them. So tempting! But remember: there’s truly no such thing as “free money” and these cash advances have exorbitant interest rates, finance charges, and special “cash advance” fees. This is one of the fastest ways to get into serious debt!
Luckily, today most credit card statements are accessible online so it shouldn’t be too difficult to stay out of debt and keep up with your finances. You should be checking yours a minimum of once a week. Personal finance apps can also help you organize multiple accounts and set budgets. Always know how much you owe, and you’ll find the ease of using a credit card outweighs any worries you might have over debt.
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Vivian Kerr is a regular contributor to the Veritas Prep blog, providing advice to help students better prepare for the GMAT, SAT.