Learn how to use credit responsibly
Your first credit card is an important milestone: it represents independence, helps establish credit, and can make life more convenient. But it can also lead to problems if used unwisely. Here’s how to establish credit by using credit cards like a pro.
Think before you swipe
At the last minute, a friend invites you for a skiing weekend. You can almost feel the cold bite of the air on your cheeks, but you know you can’t afford it. Don’t whip out your credit card and say to yourself, I’ll pay it off later. Impulse purchases, whether for trips, clothes or entertainment, can pile up quickly and lead to crippling debt. Use your credit card for planned purchases and research prices online before you commit.
Pay more than the total minimum payment
Get into a habit of paying your whole credit card bill, not just the minimum. Here’s why: Say you buy a DVD player for $300 on a credit card that charges 18% interest, then pay just the $20 minimum on your bill. At that rate, it’ll take you 18 months to pay it off, and end up costing you $345 when you add in the interest payments.
Don’t miss payments
It’s not just interest fees you have to worry about when you miss your payment date. Late fees could be $15 or more, so get into the habit of always paying your card back on time.
Establishing good credit
When you apply for a mortgage or loan, lenders look at your credit history (your past record of borrowing and paying back) before they make a decision. Using your credit card wisely now (paying on time, respecting your total credit line, paying more than your total minimum payment) will result in a higher credit score, meaning a lower interest rate and better terms when buying a home or car.
Take advantage of online banking
Banking online lets you check your credit card account anytime, anywhere. Also, since online records are regularly updated, you can get a better idea of what’s going on with your account than if you wait for a paper statement. Reviewing your statement also gives you a snapshot of your spending habits, helping you identify where you could cut back. Other benefits can include automated e-mails letting you know when you are close to your total credit line, when bill payments are due, or when a payment posts to your account.
Managing Credit Tip #14
Using a debt settlement company could hurt your credit score. Unlike credit counselors, they offer little financial education and can charge fees of up to 15% of your total debt.
Protect yourself from fraud
Review your bank’s privacy and security policies to find out how you’re protected in case your credit card number is stolen. Ask about ways to help prevent fraud and what to do if you become a victim. Never give your credit card number out over the phone unless you initiated the call. And memorize your passwords and PIN numbers so that you don’t have records of them lying around.
Looking for more information on how to make the most of your money? Check out our expanded coverage of students and finances and help build your own Ultimate Money Skills.
What's next? Manage your spending within your credit limit