Ah, college. This is the bridge between your teenage years and becoming an adult. You have more freedom than you did as a teenager, but you are still learning. This is the time where credit card companies love to pounce on unsuspecting and ill-informed folks because no one really has taught us just how important credit is and how quickly it can go down the tubes.
That is where we come in. We want to help you to learn from our mistakes and not be drowning in credit card debt, along with that looming student loan debt. In fact, you can actually build your credit while in college!
In this article, we are going to cover:
- Lessons students should know about credit cards
- How your student loan impacts your credit
- How to manage your finances while in college
- How to build credit while in college
What You Need To Know About Credit Cards
Before you find that you’re drowning in credit card debt, there are six “lessons” you need to know about credit cards:
Not An Emergency Fund
Your parents may have told you that it’s a good idea to have a credit card on hand in case of an emergency. Hey, life happens and if you don’t have money to buy food or get a taxi, you’re going to want to reach for that shiny little bit of plastic in your wallet.
However, if you don’t have money put aside for emergencies, how are you going to be able to pay for that charge? You can’t. Credit cards should only be used to build your credit. If you do have to make a charge on your card, make sure that you have the cash to back it up.
Credit Cards Aren’t Evil.
If you understand how to use a credit card properly, it can be a good tool to help you. You can get cards with great benefits like cash back, travel rewards, and of course, build that credit. To get the most out of your card, you do not want to charge more than what you can afford.
So that doesn’t mean springing for the latest iPhone on your credit card if you only have $10 a month left over after your living expenses.
Do Not Be Okay With Accumulating Debt
You should be afraid of accumulating debt! You would be surprised by how many people are lax about it, especially when they are in school. Debt isn’t something that you want to put off to a later date so you can pay it later.
You want to pay it off as soon as you can and make your payments on time. Debt can have a negative impact on your life.
No Job = No Charging
It’s just that simple. If you do not have any income, you should not be charging anything. When you get a job that earns you enough money to pay your living expenses and have some left over, then you can think about using your card.
Know Your Interest Rate
An interest rate is basically paying the money loaned to you (the credit card). This rate is determined by the credit card company and it can be anywhere from 10% to upwards to 22% (or more!). So if you charge something for $10, ultimately you are going to be paying anywhere from $11 to 12.22 for that item.
So… needless to say, when you know your interest rate and it’s pretty high, you may want to think twice about what you buy.
Do Not Treat Credit Cards Like A Game
You’re an adult now and if you’re going to be using credit cards, you need to recognize that it is going to be a big responsibility that you cannot and do not want to toy around with. You’re proving how smart you are in your classes, so you’re going to want to prove that you are smart with your finances, too.
Student Loans And Credit
Unless you come from a wealthy family (or one that planned for your college tuition from the moment they conceived you) or you were lucky enough to get a full ride through scholarships, you are going to have a mountain of student loan debt.
You’re not the only one—44.2 million people in the US are plagued with mounting student loan debt and that equals roughly $1.4 trillion in federal loans. Yep! That’s a whole lot of moolah. With that said, you might think that by having a lot of student debt is going to drag your credit score through the mud. That isn’t always the case. In fact, it could actually help your credit score.
How? By paying on your student loan, it will have a positive impact on your score. The thing is, the amount of student loans you have doesn’t really impact your score, but your repayment history does.
If you don’t pay your student loans (this doesn’t count if you are in forbearance), it can make you credit score drop by a whopping 100 points and it will continue to go down the longer you do not pay the loan.
Managing Your Finances While In College
To get off on the right foot financially, you may want to try incorporating these tips into your financial planning:
Plan A Budget
One way to make sure that you don’t jack up your credit card debt is by making a budget and sticking to it. First start off by tallying all the money you receive. This can be student loans, your paycheck, grants, or any money your family may give you to help out.
Next group your expenses so that you have a good idea of where all of your money is going. When you have a better understanding of where money has to go, you can better visualize what money you have left over—if any.
Be Mindful Of Credit Cards
We’ve touched on credit cards before in this article, but we want to really stress the importance of credit card knowledge. Credit card companies love targeting younger people because they assume they are not familiar with credit or managing finances, therefore you’re going to take that piece of plastic and charge everything.
Not only are they going to get your money, but they can charge you higher interest rates and late fees and… It’s just a mess. So, avoid it and use credit cards as little as possible and always pay them off asap.
Look For Student Discounts
You’d be surprised by there are many places where you can get a discount on their products or services. By looking for these deals, you’re saving money and that money can certainly help for other bills or even start a savings account.
Never Buy Brand New Textbooks
Textbooks are overpriced and most of the time, the teacher rarely ever uses the book for their class. Instead of shelling out a couple hundred dollars (yes, hundreds) of dollars on a new textbook, look for used ones online or even around the campus bulletin boards. You can even find websites where you can rent the textbook! That alone will save you quite a bit of money.
Protect Your Personal Information
Identity theft is a big problem for college students. You have to be mindful about your personal information. Never leave personal documents laying around and you certainly don’t want to give people access to your bank account information or share passwords to email accounts and the like.
Also, you will want to monitor your credit report on a regular basis. Oh, and don’t worry about not budgeting money for this, you can get a free yearly credit report.
How To Build Credit While In College
Just because you’re in school doesn’t mean that you cannot start building your credit. In fact, this is one of the best times to start. Here are some great ways you can start building your credit while in school:
Know Your Credit Score
Credit scores will range between 300 to 850—300 being the worst and 850 being the best. Your score is going to take several things into consideration:
- 35% Payment history
- 30% amount owed
- 15% length of credit history
- 10% new credit
- 10% type of credit
One of the easiest ways you can begin building credit is by asking your parents to co-sign for a card, or becoming an authorized user on their credit cards. This is a good thing for several reasons.
For starters, your parents could have access to a rewards type card, so that means you could use those rewards for travel, gas, and other nifty things. Also, your parents can put a spending limit on your card so that you don’t go hog wild and start charging everything and anything that sparks your fancy.
Again, we have to press upon you that you spend wisely and plan to pay that money back in a timely manner, and on time!
Get The Right Card
If you’re going to get a credit card on your own, make sure you choose one that is going to be designed for you (well, not you specifically, but for students). If you don’t think you’ll be able to pay off your purchases right away, your best bet is to go with a card with a low annual interest rate.
Sometimes it’s just best to go with a retail credit card rather than a big name card. For example, if you shop at Target frequently, you may want to choose getting one of these cards. However, if you can’t get a retail card, you may have to get a secured credit card which is a card that’s attached to a bank account. With responsible use, you may be able to qualify for a regular card.
Only Buy Small Ticket Items
One of the best ways to build credit is by using your card. With that said, you don’t want to spend a couple hundred dollars at a clip if you don’t have the means to pay that money back. Instead, buy small things like a meal at a restaurant or fill up the car. These smaller purchases are easier to pay off and will help build your credit quicker.
Do Not Cosign For Anyone
It’s understandable that you want to help your friends, but when you co-sign for someone, you are going to be responsible for their bills if they don’t pay it. Which will hurt your credit too. So to protect your credit, simply say not.
Use Student Loans For School
It may be tempting to use the rest of your student loan money on other stuff, but you don’t want to do that. Instead, use the remaining money to pay down what you owe. By throwing that extra money back at your loan, that’s less you’ll have to pay back once you graduate.
Credit can be fickle and if you mess up once, it’s going to be hard to correct it. Sometimes it will take years for your credit to right itself, even after a few late payments. With that said, when you’re responsible and you take your credit seriously, you’ll be well prepared for life after college.
When you get out there in the adult world, you’re going to want to take the financial things you’ve practiced in college and use it after school too—even if you have a well paying job and your credit cards have a higher limit.
That’s a big mistake people often make. They have a higher credit limit so they thing they can charge more. While technically you can do this, it’s going to be so much harder to pay that money back, so always be mindful of your spending!