Maintaining a disciplined approach toward using your credit card while you’re in school can pave the way to huge savings on those big purchases you’ll want to make after you graduate.
As a college student, it’s important to start building a credit history while you’re still in school. This can be done effectively with a disciplined approach to using your credit card. This doesn’t mean maxing out your card, or continuously shifting your balance from one card to another. It means using your credit card responsibly and maintaining only a small balance, if any. With proper planning, you’ll have a great credit rating by the time you graduate. That means getting the best interest rates on things like car loans or mortgages.
While you’re in school, you want to be prepared in case of emergencies, but the last thing you want to do is handicap yourself with thousands of dollars of credit card debt. Carrying a balance of more than 40 percent of your available credit balance can actually hurt your credit score. Even if you have low interest credit cards or one with 0 percent apr for the first few months or a year, eventually the full rate will kick in. Trying to pay off that entire balance at once as your introductory rate is about to expire can be very difficult. You’re far better off keeping your balance as low as possible. For most college students, finances can be pretty tight; shelling out extra money for interest payments certainly doesn’t help.
It’s also important to make every payment on time. Using an online bill payer with automatic payments can help make sure you always make at least the minimum payment due. You can always make a separate manual payment if you’re able to pay more than the minimum due each month. Late payments not only incur late fees, but they can cause your interest rate to skyrocket if a penalty rate is triggered. Worst of all, late payments can destroy the credit rating you are trying to build. As a young adult, your first credit card is really all about building a solid credit history to help position yourself well for those large purchases you’ll want to make after you graduate and enter the working world. Your credit history will determine your interest rate on these major purchases. A $250,000 mortgage at 6 percent will save you about $164 every month for 30 years compared to the same loan at 7 percent.
A disciplined approach to credit while you’re in college will help you to build a solid credit history instead of a pile of credit card debt. There’s nothing wrong with credit card purchases, or even carrying a small balance, but learn the rules that govern your credit score and keep it under control.
