What Does A New Credit Card User Need To Know?
Posted by Tracy Kerscher | August 21st, 2009 | Advice for Students, General Information, Help & Tips
For many people, the first taste of having a credit card comes while still in school. Whether you are a teen whose parents secured a credit card to develop your financial management skills, or a college student who just became the proud owner of your first credit card, there are a few things you need to keep in mind.
One of the first facts that every new credit card user must remember is that credit is a privilege, not a right. When a privilege is abused, it is promptly taken away, and may be very hard to regain. For this reason, it is very important for new users to resist the temptation to treat the credit card as if it is free money that will somehow be taken care of some day. Making a decision to use credit privileges wisely will go a long way toward establishing a mutually beneficial relationship with the card issuer.
Companies that issue credit cards do so with the reasonable expectation that whatever you charge using the card will eventually be paid in full. This is accomplished in one of two ways. First, at least the minimum payment due each statement period is rendered on or before the due date listed on the statement. The second approach is to pay off the full balance each statement period, effectively restoring the amount of available credit to full capacity.
Many new users assume that if the payment is mailed by the due date, all is well. That is not the case. The payment must be received and posted to the account before the due date in order to keep the account in good standing and avoid any late fees or penalties. Not every credit card company posts payments immediately to an account balance; the difference may be as much as three days. To be on the safe side, always remit the payment so that it is received several days before the actual due date.
New credit card users should also use discretion when responding to any type of credit card offers. This is especially true when it comes to students. Some card providers use promotional strategies that appeal directly to students, such as offering discounts on schoolbooks purchased using the card. While these extra incentives are great, they should not be the main focus when filling out credit card applications. Instead, focus on the repayment terms, including the interest rate connected with the account. Some cards that offer discounts and other amenities up front also come with an APR that is significantly higher than other card offerings.
Evaluating each credit card offer before making a commitment is very important. Take the time to read credit card reviews before submitting an application. This can be done online at many consumer sites that focus on credit card deals. Avoid offers where there are recurring themes of problems with suddenly increased interest rates or other issues. Focus your attention on card companies that have relatively few problems with their users, low interest rates, and some type of perks, such as reward points.
Because good credit will open many doors down the road, it is important to make wise decisions about how to use the cards. Along with maintaining a solid payment record, it is also important to manage the amount of your credit limit. This means avoiding asking for an increase in your limit just because you are getting close to the current one. It also means refusing credit line increases if you will be unable to pay off the entire amount of the increased limit. Making sure you keep your obligations within your means will make it much easier to obtain better credit card terms as you get older and begin to make money in your chosen field.
Every new credit card user should understand that the consequences of failing to use his or her newfound credit responsibly can have a lasting effect. The immediate consequence is that your credit privileges are revoked. As part of the long-term fallout, you also receive a negative rating on your credit report.
Negative information on a credit report makes it much harder to obtain credit for several years. Most credit reporting bureaus will keep a negative item on the account for a minimum of six years and nine months. In some countries, that time frame is even longer. This means that after finishing college and securing a good paying job, you may still have problems obtaining a mortgage for your dream home, all because of poor management of credit while in college.
In fact, failing to manage your credit properly may cost you a job. It is not unusual for prospective employers to run a credit check on applicants. If the results come back negative, this may be interpreted as a sign that you are not responsible enough to handle the duties associated with the job. That default on your college-period credit card ends up causing you to be passed over for a job that could have been the starting point for a long and rewarding career.
When looking for the best credit card deals, make sure you read the terms and conditions related to the account. Do not be blinded by marketing strategies like a low introductory rate or discounts on car rentals, travel, or even school supplies. While those perks are great, they are of secondary importance. Avoid card offers that trumpet the extras but try to bury the important things, like the APR that applies after the introductory period is over, and go with companies with high credit card ratings and a proven track record for honesty and integrity. In the long run, companies of this kind will be your best option, even if they have benefits that are less spectacular. Substance over style will take you a lot further than a couple of short-term benefits.
Tags: credit card tips, learn personal finance management, new credit card users, start credit history
Filed under: Advice for Students, General Information, Help & Tips |
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