Students Should Consider Extra ‘Credit’
by Maeve Keane
Growing up can be tough, especially when there’s so much to worry about. School, social life, work, bills, the list goes on. It’s smart to set yourself up for success financially at a young age because life happens and it’s best to be prepared.
I know what you’re thinking, how best can I set myself up for success financially? One way is building credit. Especially at a young age when you may not have any credit (which is normal), getting your first credit card may be a fast solution to that issue.
Thankfully, building credit young is totally doable. Paying off a credit card on time will show banks and lenders that you are responsible when it comes to time management as well as responsible with your balance.
Huettner, an associate professor in the business department at 4C’s, says, “There are three main reasons to have a credit card. First is convenience/ease of paying for purchases. Another reason is to build your credit report/credit score and, finally, some people take advantage of reward programs attached to many cards.”
Building credit is very important, especially for college aged students.
“If you want to borrow money for large purchases, such as to buy a car or a house, the lender will review your credit history to decide if you are a good credit risk, that is, if they want to lend you the money, and at what rate of interest. Your history of paying a credit card bill is a part of that evaluation. A person does not need to have had a credit card in order to have a credit history – if a person makes other payments, for example for utility bills and rent, those payments are included in their credit history.”
Unfortunately, credit cards can be quite dangerous if you don’t know how to budget and manage money.
“Remember you should never charge on a credit card more than you have the ability to pay when that bill comes at the end of the month. If you don’t have the cash to purchase something right now, then you should not be charging it on your credit card. It is better to wait to make the purchase and save up for it in advance, so you have the full amount in your bank account so that when you get the (credit card) bill at the end of the month you are able to pay it off in full. What happens if you do not pay the full amount of the bill – you will be charged interest. Here’s an example: If you buy an item that cost $100 and charge it on your credit card, which you do not pay off, and if the rate of interest is 25 percent (this is an annual rate, but let’s just use it for an example), then 25 percent times $100 equals $25, so now that item has in effect cost you $125.
“Typically, there is a ‘minimum balance due’ on the bill, and if you do not pay at least that much, you will also be charged a fee in addition to the interest … so you can see that a person can quickly fall into a downward spiral if they charge more than they can pay…”
As much as building credit is important, it’s just as important to be careful when using your cards. Following rules about how much you put on the cards can really help with your credit card building journey.
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