Building credit can be a scary thing, especially for young students in college taking their first steps out of the safety nets of living at home. But the truth is it doesn’t have to be a scary thing, it’s not even really a hard thing to do. There certainly is, however, a right way to do it. Every year too many students take a cavalier attitude when it comes to building credit that ends up leaving them with a mountain of student debt rather than a good credit rating. But fear not! These pitfalls are easily avoided by taking a smart and realistic approach to building credit. Here are some of the most useful tips I’ve found for college students when it comes to using credit cards:
Start on your parent card
It is often a knee jerk reaction of students seeking financial independence to immediately apply for their very own credit card. While occasionally advisable this too often this results in students making exorbitant or unnecessary purchases, leaving them with debt that quickly gets over their heads. A much easier path to take is to become an authorized user on a parent’s credit card, called “piggybacking”, which will allow you to begin building the foundations of a successful credit rating without offering the risk that complete financial independence carries.
Pay off your balance in full each month
The danger of a credit card essentially lies in the fact that there’s little to no immediacy when it comes needing to pay it off. Believe it or not a month is a significant amount of time when it comes to spending. Even a student with no monthly bills can spend a surprising amount when left unchecked. It is due to this that paying off your credit card balance in full each month becomes important. When any credit card holder looks at their monthly bill and thinks, “I’ll just pay the minimum and worry about the rest next month.” A dangerous cycle can begin wherein the credit card holder continues to put off payments each month until the debt becomes nearly insurmountable. A good practice to get into is to pick a specific day where each month you’ll hop online and pay off your balance.
Stick to one card
Trust me. One credit card is enough for any student. In fact, there’s definitely an argument to be made that, unless you’re making six plus figures a year, no one has cause for holding multiple cards. As your income and credit increase so will your credit limit, allowing you to make more purchases on one card. Picking this card can be an important step in obtaining financial independence and there are plenty of tools provided to young and old people alike that help one to pick a card that most benefits their situation and needs. Some sites will allow visitors to easily weigh the pro and cons of various cards to more easily as well as helping them make a more informed credit card decision through their education center.
Make small, regular purchases to start
The urge to go out and break in any new credit card is great. But it’s something that honestly must be avoided in order to build good spending habits. Just because your credit limit is $200 doesn’t mean you need to go out and blow it in the first 3 days of receiving your new card. One of the best way to build good habits is to pick one or two regular monthly purchases such as gas or groceries that you know you will be able to pay off at the end of the month. This helps build a realistic expectation of how much should be put on the card each month.
Avoid large purchases
Now when I say avoid large purchases I’m not saying you absolutely can’t buy that new Xbox One you’ve been waiting all year for or the killer leather coat you’ve been eyeing, I’m just saying don’t put it on your credit card. When making large purchases pay cash or use a debit card. The reason for this is unless you plan on going home and paying off your balance immediately, which let’s be honest not many do, and then you leave yourself open to accidental overspending. A $400 purchase, on the off chance as a first time cardholder your limit allows it, can seem like nothing on the 1st but come the 30th after the rest of your regular monthly spending you can easily be looking at owing more than you’re able to realistically afford. By making these purchases in cash you can more easily be certain that you’re not spending money you don’t have.