Students and Credit Cards: Basic Rules to Follow

This article is part of the Students and Credit Cards series.

We’ve recommended that students get credit early and use it wisely to establish a healthy credit record.

Unfortunately, that’s easier said than done. There’s a reason laws like the Credit CARD Act of 2009 get passed: students averaged over $3500 in credit card debt, with 85% of cardholders carrying a balance from month to month and paying hefty fees and interest.

How to avoid those pitfalls? Here are some thoughts:

• Never incur any charge on your credit card that you don’t intend to pay off in full by the end of the month.
• Heed the words of our good friend Paul Richard of the ICFE: “If you can eat it, drink it, or wear it, it’s not an emergency.” That means you shouldn’t pay for it with credit.
• Read the fine print. Know the terms of your credit accounts, including hidden fees and default policies.
• Take time to budget. Know what you can afford and avoid incurring any debts your budget can’t handle.
• If you must carry a balance from one month to the next, always pay more than the minimum required payment.
• Use automatic payments if possible. Avoid making late payments however you can; using your bank’s online bill pay to make an automatic payment is easiest if you can afford it.
• If you fall behind, answer the phone when your creditor calls. If you ignore them for too long, they’ll sell your debt to a collection agency—and wreck your credit rating in the process.
• Keep your cards safe, and check your credit report for free at www.annualcreditreport.com periodically.
• That’s the only place to get a free credit report. Any other places that offer credit reports & scores for free are probably scams.
• If you want to find out what your credit score is, avoid things like VantageScores. Your FICO™ score is the only credit score that matters.
• At this stage, one credit card is all you need; don’t apply for store cards to get an extra 15% discount.
• Remember, your only objective in using credit is to establish a good credit history for the future.

Credit is something that can’t be reasonably avoided in modern society. By being responsible and starting early with good credit-using habits, today’s students can be tomorrow’s business owners, homeowners, and have the kind of positive credit ratings they need to get the most out of life.