If youâ€™re a student and youâ€™ve yet to get a credit card, there are some important things you should know before you take on the responsibility of an unsecured line of credit. Establishing good credit is arguably one of if not the most important decisions you can make during your young adulthood; everything you do with your new credit card for the next year will determine how creditors in the future will extend you credit offers. This is why itâ€™s important to develop smart spending habits so you become used to handling credit as well as maintaining a consistently positive credit score.
Where Does Good Credit Come From?
Good credit is a direct result of your spending habits. These habits are formed during the early stages of credit use, which is why a student credit card can be either a blessing or a curse. There are three easy things you can do to make sure you stay on top of your credit score:
- Only charge recurring/planned expenses
- Make sure your statements go to an address where you can depend on getting mail
- Only carry balances you can pay off at the end of the month
Credit card companies deliberately give students offers that expire when a payment is missed (low promotional annual percentage rates are the most common) so missing even one can spell disaster to both your credit rating and your interest rate. Itâ€™s also a little-known fact that the most common reason for missed payments for students is a misplaced credit card statement, so making sure that your statement goes to a location where you rely on getting your mail is incredibly important. Residence halls and dormitory-style living situations are infamous for losing mail, so having your bills sent to an alternate location (such as a post office box or your parentsâ€™ house) is the smart way to ensure that you receive your bills and get them paid on time.
Establishing & Sticking to a Budget
Another way to keep in the good graces of credit is making frequent purchases with your credit card and then paying for those purchases in full at the end of the month. One way to do this is establishing your budget and paying for your expected expenses with your credit card â€“ this way you know you can pay off your balance monthly. If you can keep this up for a number of months (usually six, depending on your credit card issuer) you will be eligible for credit limit increases or even rate reductions.
Carrying Balances on a Student Credit Card
As soon as your rate is lowered and youâ€™ve become used to making frequent payments, you can consider carrying balances on your student credit card from moth to month. Carrying a balance would likely mean youâ€™ve paid for an unexpected expense (such as a hospital visit or course fee) or an expected expense (such as a vacation or a new computer) and youâ€™re using your line of credit to finance this expense over a longer period of time. Because student credit cards usually have higher interest rates, it will be important for you to get expenses that span longer than one month paid as soon as possible; otherwise, youâ€™re just lining the credit card issuerâ€™s pocket with money that you could be keeping for yourself.
Credit Utilization Percentage
If you frequently carry a balance or you frequently utilize the majority of your credit line (usually 80%+ of your total available credit) your credit score will decrease. The logic here is you continue to carry debt without paying it down, which is a red flag to potential creditors that you may not be able to handle additional credit lines or increases. If you have a credit line of $500 for example, try to make sure you keep your balance below $400 ($500 x 80%) and that you are constantly seeing a decrease in your balance month to month. This will keep your credit score consistently high as well as keep you eligible for reduced interest rates and other student credit card rewards.
View our selection of credit cards for students.
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