College Students and Credit

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College is the first big step away from home for many young men and women. With this new independence often comes the first credit card. Whether it’s intended “just for emergencies” or whether a student runs their entire financial life from it, using a credit card in smart ways can set you up for financial success through school and beyond. Using it badly, however, can cause damage in your credit that can take years to repair.

How Cards Work

It could almost be magic. Hand over a plastic card instead of cash, and you can buy (almost) anything you want. It can be intoxicating, walking out of stores with new clothes, jewelry, or gadgets. But you need to understand how this method of buying things works. Nobody else is going to pay for those items for you. The responsibility still lies on you to pay for everything you charge on a credit card. The bank issuing the card has just offered you a temporary loan, which you are required to pay back. And you need to pay it back with interest. That means the bank will charge you extra money to pay them for giving you the loan. The longer it takes to pay off the original sum, the more you will end up paying the bank.

Understanding how credit cards work is not complicated, but many students fail to understand the implications and spend themselves into big trouble. Failing to make minimum payments on credit card bills, along with every other sort of bill, has a direct impact not only on the credit card account, but on your credit score, too. Often a card’s APR is raised following a late payment, which means you’ll need to pay even more money to the bank. Credit scores impact many parts of adult life, including your ability to acquire mortgages and other loans under good terms, whether or not you get the job you want, and even where you are able to live.

Smart Card Use

Knowing how credit cards work, it’s fairly simple to make them work for you, rather than against you. Just make sure that you will have the money to pay off everything on your credit card. It’s best if you pay off the entire balance immediately when you receive the bill. That way you won’t pay any interest at all, and you won’t dig yourself into a hole of larger and larger minimum payments. Also, paying your credit card bills on time will build your credit score by demonstrating that you are a good financial risk, proving that you pay what you owe. Using credit cards well in college will set you up for a lifetime of financial success.

Check out what Catherine says about How To Be Smart About Cutting Up Your Credit Cards.

This is a guest post. If interested in submitting a guest post please read our guest posting policy.

[Featured image credit http://dribbble.com/Artua]

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