As you get older, the idea of a credit card becomes more and more appealing. Not just as a failsafe for when you’re a little broke, but to build credit and even to use as funds for starting a new business. I personally like to use a credit card because of the rewards that I can earn for my spending.
They’re incredibly useful things to have and you can generally find one suitable no matter what your credit score. For most youngsters heading to college, it’s all about finding your very first credit card and that means looking for one despite only having a short financial history.
There are a number of credit cards for fair or average credit on the market, and while it’s all good getting one, it’s important you manage your credit card too.
These simple steps are perfect to set you on your way with managing your first credit card…
Review Your Account Each Month
Many people won’t even look at their statements each month. They’ll just find the bill they have to pay and either pay it off in full or pay from the minimum amount upwards.
You should review your credit card bill each month as it can reveal an awful lot. It can show you your spending habits as well as tell you how much interest you’re paying on on your card each month. This will then help you calculate the cost of how much extra you’re having to pay by not paying off the full balance on your card.
From here you’ll then be able to make a clear plan on both how you spend on your card and how you pay off your balance too.
One of the ways to make this easy is to connect your card with a free service like Personal Capital, where you can track your spending and see all of your transactions (from all your accounts) in one simple dashboard.
Pay On Time – DO NOT FORGET!
One of the major reasons for applying for a credit card is to help build your credit score. However, that isn’t going to happen if you forget to pay your bill. Not paying your credit card on time can harm your credit rating and accounts for the largest part of it.
Add the date of your bill into your diary, or set a reminder on your phone so that you always know when it’s due. We can get wrapped up in all sorts on a day to day basis so it is easier to forget, and it can really harm you when it doesn’t need to.
Some credit cards, like Chase, offer tools like Chase Credit Journey, where you can keep track of your credit score as a perk of using your card.
So, you’ve got your first credit card. Fantastic, you’re on your way to building good credit. It’s not as simple as that though, particularly if you’re a college student. Only spend on your credit card if necessary. That doesn’t mean on takeaways or items you can do without.
Naturally, textbooks or expenses for research trips can be hugely benefited by a credit card, and in the long run benefit you. Think of a credit card as an additional helping hand in which you’ll return the favor in the long run.
We think it’s important to treat your credit card like a debit card. This means paying off the balance in full each month. If this sounds challenging, use a tool like Debx or Debitize to make this easier.
Understand Cash Advances
Many college students won’t understand the differences between a debit card and a credit card fully, and one of the main ones is that you can’t withdraw cash, not without crippling interest rates anyway.
A credit card isn’t a quick way to get cash. You’ll be paying interest the moment the cash hits your hand which can cause a real problem if you can’t pay the money back straight away.
Bottom line is, try to avoid cash advances as all costs. If you’re really hurting, consider shopping around for a personal loan instead.
Know Your Limits
Most of all know your limits. There are many reasons people apply for credit cards. On the whole they’re incredibly handy things to have and signing up to one early can boost your credit significantly for the times you need a good credit score most.
But don’t push it to the limit on your spend. Understand what you can and can’t afford to pay back and never tow that line. Keep yourself comfortable with your credit card and applying for one could be one of the most sensible decisions you ever made, particularly a few years down the line when you’re applying for mortgages or business loans.
Getting a credit card has a lot of perks. But, you need to make sure that you use your card responsibly, or else you could face serious financial challenges.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.