Credit Cards…we all want one. We don’t necessarily know why, but they sound really, really great. Endless money…right? Of course, we all know that this is not the case; in fact, it’s exactly the opposite. I’m sure you have heard the horror stories about credit cards: things can go terribly, terribly wrong in the blink of an eye. And yet,
without credit you can say goodbye to the prospect of getting a loan (for buying a car, for example), getting an apartment (most landlords require a “credit check” before even considering you as a tenant), obtaining auto insurance, qualifying for a mortgage (to buy a house), along with a number of other things that rest completely on YOU having a credit card and keeping up a good credit score. So, here’s a list of tips to help you get started establishing yourself in the credit-world:
• What: Your “credit score” is a summary profile of your credit history (conveying your ability or inability to, for example, pay bills on time—this might seem obvious, but if you don’t pay on time, your score goes down; if you do pay on time, your score goes up… pretty simple). The Creditor’s Bureau compiles this history report into a number on a scale that ranges from 300-900. So what score do you want? A good score is in the mid-700’s. By knowing your score, experts say that you can use your score to improve your “creditworthiness” and negotiate for the best possible terms and rate. Now is the time to take control of your credit future!
• When: The time to start building credit, in my personal opinion, is sometime around the beginning of your senior year of college. By this point, you should be more comfortable managing your own money, creating a budget and sticking to it, as well as familiar with the implications of running out of money. Plus, senior year is your threshold year in which you get to prepare yourself for independent living…officially entering the adult world. In this way, you have a year to practice controlling yourself with the credit card, while still having that parental safety net helping to ensure your bills are paid on time.
• How: There are a variety of ways to go about getting a credit card (and starting to build your credit history) before you have enough credit to actually qualify.
1) “Piggy Backing” on your parents credit: The way it works is that you open up a credit card with one of your parents at the bank—by this I mean, you are not just an “authorized signer” on the card, but your name is also listed on the application. Thus, in essence, as you use the card and pay off the charges you are “adopting” your parents’ credit score. The banks are obviously more comfortable with this means of providing you with a card, as they can trust your parent (if the worst were to happen) to step in and cover the charges.
2) Apply for a Student Card: Many banks will be more lenient with your current credit history and consider you based on the money that you receive from your parents as a form of “income.” In fact, according to a recent CNN Money article, “Banks spend $82 million to sell credit cards to students.” Bank of America and Chase are actively pursuing college students with little to no credit. For more information, click here. This is of particular interest to us as Skidmore students as Bank of America is our local bank… meaning that our chances of qualifying are higher than students located near a KeyBank, Citibank, Webster Bank, etc.
3) Shop Around: Many department stores, gas stations, grocery stores, and even websites (like Amazon.com) offer credit cards (or credit lines) that you can apply for. The key about these cards is that they have the ability to EITHER yield rewards/discounts (for example, if you open an Amazon credit account and use the credit, you could potentially be rewarded enough to cover all of your textbook expenses) OR the ability to help you control your use of the card. That is, if you have a Macy’s card, and you don’t go to Macy’s very often, you are accidentally controlling your spending. What’s important is that you look at the interest rate, or “APR,” (meaning “Annual Percentage Rate”) that the card is offering. If the APR is out of control, the reward perks are not worth it.
• Then What? Here are the facts: Creditors (whoever supplies you with the credit card) send your updated information to the Creditor’s Bureau every 30 days. This is important because it has everything to do with actually using your credit card. Financial experts recommend—at first—that you only use the card once a year, maybe every 6 months, so as to limit your potentiality of falling into a deep, dark pit of DEBT. However, in order to build substantial and reliable credit (once you’ve got a handle on the whole thing), using your credit cards
often is highly recommended… but we can save that article for a later date. Also, this infamous single charge of the year should not exceed 10% of your credit line. This means that if you have a $900 credit line, you can only spend $90 of it. AND, this is the most important part, pay off your charge IN FULL before it is due. I know I’m not alone in hearing the myth that you are supposed to pay off your charges over time (only paying the minimum amount due each month), but that is exactly what it is—a myth. Pay IN FULL and ON TIME, every time.
• The #1 Golden Rule: Control yourself. This is not an opportunity to buy yourself a new wardrobe or take all of your friends out for the night. And if you see yourself potentially falling victim to those sorts of urges, be honest with yourself and don’t get a credit card. Credit is a fine line to start walking on; always keep in mind that no credit is better than bad credit. Your financial future lies in YOUR hands. The only way to ensure a smooth future is to control your spending, being aware of your limits, and never falling victim to the feeling that credit cards are “free money.”
Hopefully these tips have been helpful to your eventual financial independence! And remember, if you have any questions regarding credit, saving, money, or are in need of any sort of financial advice, never hesitate to comment below. Also, if there are any financial topics that YOU would like covered, please let us know!
Next week on MoneyMatters, look out for “Cracking the Coupon Code: How to Benefit From Coupon Discounts Without Having to Spend Hours Clipping Moneysavers.”