What should a college student know about credit cards?
The average college student will be offered hundreds of loans throughout their career. From college loans, to mortgage loans at graduation, and credit cards at every stop along campus, lending opportunities are everywhere.
So let's talk about the most common loan - credit cards - and what a college student should know before signing up.
1. Income governs quality - College students who do not have sufficient income usually qualify for what is known as a student credit card. Student credit cards rarely have good rewards, and often come with very small credit lines, which leads us to the next point
2. Credit lines can cause damage - Smaller credit lines can have a huge negative impact on your credit score. As your credit score is calculated on the basis of several factors, with utilization being one of the largest variables, a small credit line is often used in excess of the 30% rule. Never use more than 30% of your available credit on any one card to keep your credit score as high as it can be. If you qualify for a $500 student card, then never use more than $150 of your credit line at any one time. Using $200 would put you at 40% utilization, which lowers your credit score substantially.
3. Minimum payments - Avoid making the minimum payment if at all possible, and always try to pay your balance in full each month. You should always pay your "statement balance" amount each month so that you never pay interest on your credit card. Also, know that making minimum payments on your credit card will mean that it takes roughly 6 years to pay off any debt that you have. The last thing you want to do is accumulate debt at 21 years old that grows at 20% annual interest until you're 27 years old before it is fully repaid.
