It has been four long years, and the day is fast approaching when young adults can quite literally sing, “No more pencils, no more books. No more teachers’ dirty looks.” Graduating from college and entering the real world is a big step, and carries with it new opportunities for both success and mistakes. University students are now bombarded with credit card offers from the day they enter secondary education. Credit cards are temporarily liberating, opening new doors of financial independence. But all too often they also lead to financial stresses once the debt rolls over to a high interest rate commitment. The credit card is a symbol of adulthood, and responsibility, and when used wisely can help in establishing a credit profile and score as a springboard to bigger and better things such as a new car, or a home. Conversely, irresponsible use of a credit card can bury a person in years of credit turmoil. Credit cards are fickle beasts, whose bite can be far worse than their bark. Worse yet, they can be like the mythical Sirens in Homer’s “The Odyssey,” luring the inexperienced users to the rocks of credit card debt and potentially sinking their credit scores into the abyss, and thus forcing them to postpone some of their goals until that debt is retired (paid-off). Without further prosaic imagery, below are some pointers to these recent graduates, or anyone for that matter, who may be getting their first credit card, that can help them avoid the many pitfalls that come with credit cards: • Get to know all of the responsibilities in owning a credit card. Think very carefully before you decide to get your first card. Is a credit card or borrowing money really necessary, or would another option work just as well? • Choose wisely. When selecting a credit card, be aware of all of the interest rate and repayment options. Compare different cards based on your needs and your ability to pay all purchases in full. Look for the following: o A low annual percentage rate (APR), which will reduce the interest you have to repay: Beware of low introductory rates that might increase after a period of time (no less than six months). o The interest calculation method: This can change how much interest you pay. o Low or no annual fees, which issuers might charge: If the issuer charges an annual fee, ask them to waive it, or do not accept the credit card. o All other charges (late payment fees, transaction fees, over the limit fees, etc.): These can add to the total cost of your charges. o Grace periods: Some credit cards charge interest from the day you make charges on your account. Other cards offer a grace period for you to pay your balance before interest begins to accrue. o Credit limits: In order to maintain reasonable payments, keep your credit limit low (consider a limit of $500 or less). o Services and features, such as cash rebates, frequent flyer miles, extended warranties, convenience checks, etc.: There may be consequences for the true cost of these programs, especially when you consider interest and other charges. • Limit the number of cards you get. Having one credit card will help you manage your spending. • Opt out of interest rate increases. You can “opt out” of any interest rate increase and continue to pay off your balance at the current rate for up to five years. However, you may not charge anything more on that card. • Don't spend more than you can afford to pay on a monthly basis. Responsible use of your credit cards will help you establish a solid credit rating and avoid financial problems. • Keep track of your spending. It is important to monitor more often than once per month when you receive your statement. o Check your account online frequently. o Save receipts and keep accurate records. o Maintain a ledger. o Consider signing up for balance notices and billing statement notifications from your credit card provider. • Opt out of receiving credit offers, ending the number of pre-screened offers for credit you receive. Opting out might reduce temptation to apply for credit you don’t need. You can opt-out online. •Keep an accurate record of the following in case your card is lost or stolen. Keep the information in a secure, safe place at home. o Account number o Issuer’s name o Phone number o Photo copy of the front and back of the card • Don’t be afraid to negotiate terms. Ask your creditor to change the contract terms and rates. For example, if you receive a notice of a rate increase, contact the credit and ask to negotiate the rate lower. • Close a credit card account correctly. Part of your credit score is based on the length of your credit. If you choose to close your credit card, notify the issuer via registered letter and keep a copy of the letter for yourself. If you cancel a credit card over the phone, it could reduce your credit score 20-30 points. By documenting your request, you have proof that you chose to close the account, not the issuer (for example, due to bad credit). If followed, these tips can help students or recent graduates to leverage the power of credit cards without creating financial strife.
Previous: 5 Steps to Becoming Debt Free
Next: Savings and Last Minute Travel Options for Skiers