Inside Student Credit

"Inside Student Credit" submitted by SchoolGrantsfor Editorial Team and last updated on Friday 22nd July 2011

If you've spent half a minute in your college's student union, then I'm sure you've been invited to sign up for a student credit card. Banks want your business badly. They get you now and make a customer for life out of you. Is that a bad thing? Yes and no. Establishing credit history is one of the most beneficial things you can do early in life.

However, you have to be aware of the responsibilities you assume by using a credit card. If you get too far into the woods (i.e. in debt over your head) and can't make your payments, you are in trouble. Big trouble!

I know that won't happen to any of you though, right? I hope not.

So, how can you build a credit history and not get over your head? Well, it's simple math really. Don't charge more than you can afford to pay off monthly. That is, if you charge $50, be prepared to pay $50 when you get your statement.

I know it's tempting to use that new-found credit to buy the things you may need or want, but, unfortunately, there is no such thing as a free lunch. At first the payments will seem manageable, but as you charge your way further into debt, your payments will increase and so will the strain on your budget.

Be a smart consumer

Being a smart consumer means using credit as a convenience. Think of using credit like writing a check. Never charge more than you can afford to repay on a month to month basis. Follow this simple rule and you'll never get behind. Getting behind means you charge more than you can pay and are forced to pay the monthly minimum (or sometimes more), but never the full amount.

Paying the minimum monthly amount owed on your balance is simply not enough. The minimum monthly balance accounts for repayment of your obligation over FOUR years. I'm not going to do the math for you here to illustrate my point. Even on a relatively small balance that can add up to a ton of interest payments when they are spread out over that length of time. Don't get suckered in here.

Also, be sure to make your payments on-time. All those great interest rates can vanish instantly simply by making a late payment. Remember that great rate you got on your new credit card? Well, after one late payment it may be increased (at the bank's discretion - not yours) to the maximum rate the card charges. Often, that can mean an APR that goes from 9.9% fixed to 22.9% variable! Ouch!

When you use credit, you are borrowing money. Use that "loan" responsibly. If you have to carry a monthly balance, be sure you can AT LEAST make the minimum monthly payments. Always pay more when you can. Even better, never get behind.

Having a credit card is not a bad thing. In fact, it can be a very good thing. As with all things in life, moderation is the key and when it comes to credit, keeping your wits and using your card responsibly is the BEST way to go.

Be aware, charge with care!