Credit Tips for University Students
Picture this: you have finally graduated from college and it’s time to find a job, a car, and an apartment. You walk into the car dealership with your heart set on some wheels and get automatically turned down because of your credit rating. This is a situation that happens all too often among college grads, and it’s usually for one of two reasons:
- You’ve never had a credit card because you heard they were evil.
- You have 10 credit cards and owe a lot of money because you couldn’t resist the shiny plastic.
Ok, maybe those are slight exaggerations, but they aren’t too far from the truth. It’s no surprise that college kids end up in this predicament because they have contradicting information coming from all sides. On the one hand they are being bombarded by credit card marketing on college campuses, offering anything from free pizza to iPods. On the other hand, they hear horror stories about the kinds of debt people get themselves into.
The truth behind credit, of course, lies somewhere in the middle: you need it in order to get ahead in your financial life, but you can’t abuse it. By following some simple rules and understanding the credit game, you can start building your credit without diving into financial ruin.
Take out a card (maybe two)
Avoiding credit cards at all cost may seem like a good idea, but in actuality you are only hurting yourself. You’ll need some sort of credit history in order to take out loans, a mortgage, or finance a car. Some employers and landlords have even begun checking people’s credit to make sure they are good for their money.
If you’ve never had a credit card, you essentially have no history. That means you have nothing for these guys to go by, so they can assume you’re bad with money. The ideal situation would be to take out one card (two at most, to prove you can juggle more than one) and use it periodocially.
Put a spending cap on the credit card
Credit card companies love giving ridiculously high credit limits to college kids because they think they’ll max out the cards. Do not fall for this. You can easily ask your bank to put a spending cap on your card so you do not drown yourself in debt.
Put small, recurring payments on the credit card
Owning a credit card isn’t enough when it comes to building a good credit score – you have to use credit to build credit. The difference lies is whether you use it wisely or not.
Do you have a cheap gym membership? Use your credit card. This way you use it every month, and the amount is small enough that you can pay it off. You can even put a Netflix membership on there. As long as you use it to some extent, and are able to pay it off in full every month, you can start building good credit.
Don’t make impulse purchases on credit
That iPad might look really nice, but it’s going to cost you a lot more if you put it on a credit card. Not only is using a credit card one of the most expensive ways to borrow money, making impulsive purchases can lead to detrimental financial habits that will be difficult to crawl out of later on.
Don’t use more than 50% of your limit
Using a big chunk of your limit increases your debt to limit ratio. That is to say, the more money you owe the worse it looks. A good rule of thumb to follow is to never use more than 50% of your limit. One you pass that amount, credit lenders start getting nervous, and your rating could take a hit.
And the most important tip that must always be followed…
Always pay your card in full each month
By following this one simple step you can not only build good habits, but secure your credit rating for years to come. Don’t fall victim to thinking you’re in the clear because you made the minimum payment – interest adds up and it can really cost you!
Image by Images_of_Money
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One of my friends in college committed suicide because he maxed out several credit cards. It was only $15k but it apparently seemed insurmountable.
> they’ll max out the cards. Do not fall for this.
The credit card and banking industry spends billions each year to market to your desires and fears. They are a lot better at influencing you than you are to resisting this. I agree, “do not fall for this”, but I also realize there’s a lot of people that get influenced easily … and some will end their life over poor choices.
That’s an absolute tragedy. Our deepest condolences to you and your friends’ loved ones.
Many people set out with good intentions to stick to a self-imposed spending limit and repay in full, but fail to realise the pressures consumerism and easy credit place on people of all ages.
If anyone you know is struggling with debt, please encourage them to talk about it and to seek help – there is a lot of support available these days to get them through it, such as credit counselling or help with reducing financial stress and depression.