Tuesday, April 10, 2012

5 Credit Card Tips for Students and Newbies

I should have paid closer attention in college for a variety of reasons, but that is a different article. Often, I would find myself sitting in class, daydreaming and looking around the room where, on the bulletin boards, flashed advertisements and applications for credit cards. Boy, with spring break approaching and with no money to pay for a trip, those credit cards seemed like an easy solution. Heck, I would graduate and get a good job then pay off the card. Well, it did not quite work out that way.
This occurred in the late 80's and with the new regulations which went into effect in 2010; the college market is not quite the fertile farming ground it once was for lenders.
However, many of the same traps exist today as they did 25 years ago.
Credit is important to establish when you are first entering the workforce as it will allow you to develop a credit history. Your credit history can hurt you or help you depending on how responsible you are with managing your credit. Here are some smart strategies to implement so you can start off on the right foot.

5 ways to help build excellent credit

1. Use credit cards for convenience not credit
This title sounds odd given the cards are called "credit" cards, not "convenience" cards. However, if you develop the habit of paying off your credit card balance each month, you are likely to build solid skills in managing your credit. Carrying a balance each month on a credit card is what leads many people into financial difficulties. Pay off the balance each month!
2. Make payments on time
The penalties for paying your credit card payment late can go far beyond the monetary lashing of late fees. A hike in your interest rate could be your ultimate reward for paying late. However, the real penalty could come in the form of a blemish on your credit report which could make future credit both more difficult and more expensive to obtain.
3. Have only one card
Say you didn't follow the first tip, and now you've maxed out your card and need another one. Yep, I was young too and also made this mistake. This is where many people find they have taken a detour with their financial future. Seeking more credit because you have maxed out your existing card is a recipe for financial failure. One way to safeguard against making this mistake is to maintain only one card.
4. Consider automatic deductions
We all get busy and sometimes we simply forget about the stack of mail sitting in the corner. However, as I pointed out in Tip 2, the penalties for paying your bill late can have serious repercussions. Consider setting up an automatic deduction your credit card company or so that your payment is guaranteed to be paid on time.
5. Don't use your card for cash advances
Credit card companies typically charge a higher rate for cash advances then for purchases. Additionally, your payment may be applied to your purchases first and your cash advances last. Basically, this means that if you carry a balance and don't pay off your card each month, you could find that cash advance to be a very expensive loan.

Final thoughts
Look for credit cards which have no annual fee and have reasonable rates. Some cards have some additional nice features such as a rewards program which offers cash back on select purchases. These are nice features to have, but not always at the expense of higher interest rates and annual fees.
The original article by Marc Pearlman can be found here: 5 credit card tips for students


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