Managing Your First Credit Card Account

Many students will leave home for college in several weeks, taking another step toward thier independence. One of their new responsibilities will be managing their finances. Students unprepared for this new freedom can quickly go into debt and greatly damage their credit score.

Many college freshmen will be confronted with obtaining and handling a credit card account for their first time. Here are some tips for managing your first credit card:

Don’t apply for the first card you see. There are a number of student credit cards on the market. Each one has unique terms, fees and rewards. Before applying for a credit card, research all the options available to you. Read the terms and conditions of any card you are considering.

Don’t assume someone else’s credit card is the right card for you. Your friend may have a credit card with a low interest rate and even some rewards. However, your friend may also have a different credit score than you or different spending habits. It is important to assess your personal needs and find a card that aligns with those needs.

Pay your monthly balance in full. Since students have limited credit histories, the interest rate on student cards tends to be higher than someone who has excellent credit. Interest rates can be in the mid-twenties. Thus, if you carry a balance every month, you will be paying a tremendous amount of interest on your purchases. Paying off your entire balance each month also sets you on pace for good payment history, and keeps your credit utilization rate low. All of this will help your credit score.

Only charge what you can afford. It is very important to use your credit card to buy items for which you have budgeted, then pay your balance in full well before the due date. If you cannot pay your balance in full, come up with a reasonable repayment plan before you make a purchase. If you cannot pay off the balance in the foreseeable future, you probably should not charge the expense to your credit card.

Stick to one credit card for now. Once someone has established a long and positive credit history, there are a variety of reasons they may choose to have more than one card. However, when you are establishing your credit, it is better to keep and use one student credit card. This will make it more difficult to overspend, and you will be more likely to pay your balance on time each month.

Don’t fall for pre-approved offers. You may see some pre-approved credit card offers in the mail and in your inbox. They may sound like attractive options at first, but there is no guarantee you will actually be approved for the card in question. Moreover, there is no guarantee that the card is a good option for you personally. You are much better off comparing credit cards online so you can find the best one for you.

Avoid expensive fees. If you read your credit card terms and conditions, you will see your new credit card may carry a number of expensive fees, including over-the-limit and cash advance fees. These fees are easy to avoid with proper money management. Monitor your credit card spending so you do not exceed your available limit. Never get a cash advance unless it is an absolute emergency. In addition to fees, cash advances often carry an APR higher than the normal APR for purchases, which makes it an expensive way to borrow money.

Never loan someone your credit card. You are responsible for any charges a friend might make, regardless of whatever payment arrangement they make with you. If your sister borrows your card to buy groceries, but then decides to buy an expensive sweater, you cannot dispute the charge since you gave her permission to use the card. If your sister does not pay you for the sweater, you are still responsible to pay the balance on the account. Failure to do so may reflect poorly on your credit score. Additionally, if the card is lost or stolen while in your sister’s possession, you may not be able to dispute fraudulent purchases, as the credit card company could argue you did not do enough to ensure the safety of your card.

Accept a higher credit limit if it becomes available. This will reduce your credit utilization rate because you will have more available credit compared to the same balance. With this in mind, you should not abuse a higher credit limit. If you think having a higher limit will send you into unmanageable spending, don’t take it. Stick with the boundaries that will preserve your credit score.

Sign up for email or text alerts. You can receive a text or an email alerting you that your payment is coming due which could help you keep current on your card payments. These alerts can also give you an indication of any irregular activity in the account, helping you to catch issues as they develop.

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