College and credit cards: building your credit and avoiding debt
SPRINGFIELD, Mo. (KY3) -Many college students are taking the first steps in building their credit by getting that first credit card. While it may be exciting to access those resources, managing them takes some discipline and responsibility.
Credit cards can be a good thing. They can help you establish credit and payment history and make safe purchases online. The trick to using these things to your benefit is good money management.
First, shop for a card that is a good fit for you. Try finding companies that offer student cards with rewards. Once you’ve been approved, treat the credit card like a debit card and make a budget, and don’t charge more than you can pay off.
If you make a big purchase with a credit card, try saving up the cash first. Use the card to make the purchase, then pay it off with the cash you saved once the statement comes in. This will help you avoid interest and establish a good credit history. Your first credit card will most likely have a high-interest rate. That interest will add up if you make small payments instead of paying the statement in full.
“As soon as you get a credit card, it shows up on your credit reports,” said Senior Councilor at Consumer Credit Counseling Doug Watson. “When you get a new one, are going to be a high-interest rate, probably 20-25% or higher interest. That keeps people from paying them back very quickly because the interest is so high that causes the payment to be higher to really pay off.”
Remember, when using a credit card, you are taking out a loan that needs to be paid back. To avoid overspending, use the credit card to make small purchases like gas or groceries that are already part of your monthly budget. Once you get that statement, immediately pay it off in full to avoid interest charges. Avoid charging things like a new wardrobe or a trip until you know you have the cash to pay it off.
“I have people come into my office often that say, Well, when I was in college, I went crazy with my credit, now I’m paying for it.,” said Watson. “ We’ve put them on programs to try to pay off 1,000 of dollars of debt sometimes that students have accrued while they’re in college because they were able to get a couple of credit cards. They went crazy with them, not thinking about the consequences later or what it really cost them.”
Don’t charge more than you can afford to pay off. It may be tempting to buy new clothes or book a trip, but if you can’t pay it off, you’ll accrue interest that can be hard to pay off and affect your ability to make future purchases.
“When your credit score drops down, suddenly you’re having trouble renting a place because you can’t qualify, you’re having trouble getting a car or something else that’s a larger loan because your credit score is too low, even affecting your purchasing your first home because your credit score is too low,” said Watson. “All because you mishandled credit cards when you were in college.”
Every time you apply for a credit card, it makes a hard inquiry on your credit report, which lowers your credit score.
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