If used responsibly, a student credit card can help you build a good credit score before entering the real world. You can use your credit card to pay for school-related expenses, and it also provides cash in an emergency cash. But given how credit cards can help or hurt your credit, it's important that you know how to manage an account.
Sadly, some college kids don't know the first thing about managing credit. The following tips, however, can provide the knowledge you need to maintain your credit health.
Understand Credit Card Terms
From annual percentage rates to grace periods, there's no shortage of credit card terms. Read the fine print of the credit card application and make sure you understand and accept the terms of the agreement. You need to understand how the credit card works, and what you're getting as a cardholder. For example:
- Does the card allow balance transfers?
- What's the APR on balance transfers, purchases and cash advances?
- Does the card have a rewards program?
- Is there a foreign transaction fee?
Always Pay on Time - No Matter What
Getting approved for a credit card is just the beginning, now you have to manage the card responsibly. This includes paying your balance on time each and every month. Every 30-day late payment lowers your credit score by several points, and it can take months to regain lost points. Timeliness makes up 35% of your credit score, according to MyFico. So, a long history of late payments can literally destroy your credit, making it harder to qualify for any type of financing.
Stay Under Your Credit Limit
Even if you only qualify for a low $500 credit line, don't max out your credit card and don't maintain a high balance. Remember, the goal is building a good credit history. Since the amount you owe makes up 30% of your credit score, higher balances equal a lower credit score. Ideally, credit card balances should never exceed 30% of your credit limit. However, people who have the highest credit scores keep balances between 1% and 10% of their credit line, says Credit Karma. Get into a routine of paying off your cards in full every month. To do this, only charge what you can afford.
A cash advance puts quick cash in your pocket, but proceed with caution. Some credit cards let you withdraw cold, hard cash from an ATM. The problem, however, is that cash advance rates are higher than rates for purchases and balance transfers.
Examine your credit card statements on a regular basis to check for fraudulent charges. Additionally, order your credit reports from Annual Credit Report at least once a year. This is one of the best ways to protect yourself from identity theft, and catch mistakes that can lower your credit score.
Don't Lend Out Your Credit Card
It doesn't matter if it's your best friend or your significant other, never lend your credit card to anyone. This person might go overboard and spend more than you authorize. And if he or she can't pay back the money, you're ultimately responsible for any purchases charged to the account.