Credit Card Savvy: Plastic Tips for Students
Here are the key tips for managing a credit card. They will help you minimize your expenses, limit your accumulated debt, and maximize your personal wealth.
- Before you start using a card, decide what it will be used for. Remember that a credit card limit is not free money. It is a loan that you must repay.
- Start slowly with one card with a low limit, and use it responsibly. Starting small will help you establish a credit history and keep you from getting into excessive debt. If a credit card company raises your limit, you may request that the limit be lowered.
- Read the fine print!! Make sure that the card you sign up for is what you think it is. For example, what is the interest rate after the expiration of the introductory rate? Does the card have a grace period and an annual fee? When will fees be charged, and how much? Which balance computation method is used. (Average Daily Balance Method is most common; Adjusted Balance Method is usually the most advantageous for card holders). Shop around for the best card for your spending/repayment habits.
- Always pay on time. Mail your check at least a week in advance of the due date.
- Try to pay off your total balance each month. Credit cards are an excellent convenience tool; however, they can be extremely costly if a balance is carried. If you always pay off your balance, you will not get into serious credit card trouble.
- If you already have significant credit card debt that you cannot payoff immediately, pay more than the minimum payment. If you only pay the minimum, your debt will take years to repay. If you have multiple cards, pay off cards with the highest interest rates first.
- Avoid having multiple credit cards including retail cards. A few cards are fine, and they will help you establish a credit history. However, too many open credit lines, even if they have zero balances, would be considered a negative mark on your credit report. Lenders do not like it when you have the ability to quickly incur significant debt. Some experts recommend that total credit lines be limited to no more than 20% of your annual income. Resist the urge to acquire that "free t-shirt" by opening another credit card.
- Make sure that you cancel unnecessary/unused credit cards. Do not just cut them up. Credit cards will show as open lines of credit on your credit report until you cancel them. Tell the creditor to reflect "account closed by consumer" on the credit report.
- If for some reason, you will be late with your payment, call the issuer and let them know--ahead of time if possible. The issuer may be willing to make alternate payment arrangements that won't leave a mark on your credit report, particularly if you have a good payment history. It is also a good idea to be aware of your due dates so that you can plan your payments.
- Keep in touch: If you change your name or address, notify your lending institution immediately. Your payment could turn into a late payment in the time it takes for a statement to be forwarded to your new address.
- Keep copies of sales slips and compare charges when bills arrive. Examine your bill, including changes in terms, which may be slipped in with your monthly statement. Interest rates and fees may be changed with only 15 days advance notice.
- If you have a billing error, put it in writing!! A telephone call will not protect your rights. If you find a mistake on your bill, you can dispute the charge and withhold payment on that amount while the charge is being investigated. The error might be a charge for the wrong amount, for something you didn't purchase, or for an item that was not delivered as agreed. You still have to pay any part of the bill that is not in dispute, including finance and other charges. Write to the creditor at the address indicated on your statement for "billing inquiries." Include your name, address, account number, and a description of the error. Your letter must reach the creditor within 60 days after the first bill containing the error was mailed to you.
- Remember that interest rates can be negotiated with the credit card issuer. If you feel that your interest rate is too high, it does not hurt to ask the company to lower the interest rate.
- Do not let a friend use your credit card. If your friend is unable to pay the bill, you will be responsible for payment.
- Create a budget. The American Express and Mastercard websites have helpful budget calculators for students. Another useful tool that may be used in conjunction with a budget is a credit card recorder in which you document your credit purchases. By using a credit card recorder, your monthly bill will not be a surprise. If you have difficulty staying within your household budget, consider paying by cash, check, or debit card, instead of using a credit card.
- Start a savings account! It is a good idea to deposit a set amount into your savings account on a regular basis. A good rule of thumb is to save 5% to 10% of your income; however, even just $5 or $10 on a regular basis will help. Once you have a savings cushion, you won't have to turn to a credit card every time an unexpected expense pops up. A savings account is a key part of a full, healthy financial picture. Starting today is better than starting tomorrow. And starting this year is most definitely better than starting next year.
Source: Federal Deposit Insurance Corporation at www.FDIC.gov
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