You Don’t Have to be a Dork to Master Credit Cards in College

My name is Jude Urda and I recently graduated from college while using a not-so-stellar financial plan. My website, Student Saving Money, is dedicated to providing sound financial advice to save money and earn a few extra bucks. I want students to avoid my mistakes and actually have fun while dealing with financial matters!

Credit cards can be a college student’s best friend or worst enemy. Cards are essentially loans that are to be paid back at a later date. They can be used in case of emergencies and in times of need, but should not be used to buy those $200 pair of shoes that you cannot afford to pay back. Cards should always be paid in full each month to avoid interest charges, which will rise quickly considering most students have a limited income. You want to build good credit for later purchases, such as cars and houses. Great credit will save thousands of dollars later down the road.

Let’s look at some credit card basics. I guaranteed that YOU can conquer credit cards in college without being “financially literate” or a complete dork:

Credit Line.

This is the maximum amount of money that the bank has agreed to let you use. Most introductory cards range somewhere from $300 to $3,000 and can vary widely depending on the company and your personal information. A general guideline is do not use more than 50% of the credit line, as this can negatively affect your credit score.

Annual Percentage Rate (APR).

Annual Percentage Rate, or APR, is the annual rate that is paid on the credit card balance. Most student credit cards have a fixed APR of 18-19% or a variable interest rate between 14 -22%. Variable interest rate is the Prime Rate (Interest rate charged by bank to most creditworthy customers) plus an indexed percentage. The variable and fixed rates often end up being very similar.

Payments.

Payments are usually made on a monthly basis and are on the same date every month. The best advice is to keep a low credit card balance and pay it off in full every month. Using credit cards is better than having no credit balance because you get to build credit for later use. Paying the minimum monthly payment is not a good idea and will cause interest build-up. Let’s look at an example.

Balance: $500

Interest Rate: 18%

Time Period of Payments: 2 years

Minimum Monthly Payment: $20

Interest Charged: $122.08

I don’t know about you, but $122.08 should be a good chunk of money for a college student or a recent grad.

Other Advice to conquer credit cards.

Here are some other tips that can help you when you decide to delve into the world of credit cards.

  • Never miss a payment. I repeat, NEVER MISS A PAYMENT. Missing a payment greatly hurts your credit score and can hurt credibility in the eyes of creditors. I do not advise only paying the minimum monthly payment, but this is a much better approach than completely missing a payment date.
  • Use credit cards for only what you need.  You NEED food to survive, so getting groceries with a credit card is understandable. You WANT a new cell phone, but do you really need it? No, you do not. Anytime you use a credit card to make a purchase, ask yourself the question “Do I need or want this item?”
  • Use only one card. Do not get into the habit of opening new cards. This will only cause a headache and allow bills to get higher and higher. Having one credit card keeps it simple and you will no doubt remember to make payments.

I hope this advice can help you destroy credit cards while the rest of your friends go into debt in college.  Remember to always keep the credit balance low, make a full payment every month, and only use credit when absolutely needed. The benefits of great credit may not be evident now, but in 5 or 10 years, you will most definitely reap the benefits.

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