I just got my first credit card, which has earned me a lot of “Congrats!” from my family members and older co-workers but left me with even more stress. How do I use a credit card responsibly? Why are they so important? Getting my pink credit card was all fun and games until I realized how much debt I could get into if I became super irresponsible. I started doing a lot of research on cards to see how to best use my new card. I learned a ton and wanted to share.
Credit cards are one of the easiest and earliest ways for college students and people over 18 years of age, to start building credit. To get loans on things such as cars and houses, you need a good credit history. Your credit history and your credit score need to be good because they show lenders how reliable and trustworthy you are with the money they may give you.
Credit cards are one of the easier ways to build up a credit history. They must be used responsibly and wisely to build a good credit score. These are the three ways to build up your credit with a credit card:
- Use It Every Month
- Pay It Off
- Keep a Low Credit Utilization (don’t worry, I will explain later)
Use It Every Month
It is true that you can get a credit card, activate it, never use it, and still get a credit score. Albeit it is a long process and does not give you a high score, but it is an option. But the best way would be to get your card and use it.
The way you spend the money is up to you, but a good option would be to use it on your monthly reoccurring bills or things you already pay for.
Pay It Off
And not just pay it off, paying it off on time is super important. Missing your payment due date is a terrible thing for your credit. I try to pay mine as soon as I get the statement. You can set up autopay for most credit cards. It is so important to do this so credit companies can see you can meet payment deadlines.
You’ll want to try to pay it off in full each billing period. This means making more than just your minimum payments. Paying it off in full means that you spend less money. When you do not pay the full balance, the remaining gains interest, which means you have to pay more than you already were going to.
Keep a Low Credit Utilization
This means that you should only use about 30% of your card’s money. This means if you have a card with an amount of $1,500, you should spend less than $450 per cycle. The sweet spot, especially for broke college students like me, would be to hit that 1-10% of your card. It is important to keep it low because FICO (the biggest credit scoring agency in the U.S.) uses this as a factor in their scoring. Lower is better. It actually accounts for 30% of how your score is calculated, so keep it low.
You should definitely stay away from maxing out your card.
Just because your credit card says you have money to spend, this does not mean you should. I think the best way to use a credit card as a student is to only use the card for things you need to purchase, like your Amazon Prime and Disney+ subscription. Use the credit card for things you already are going to buy or pay for.
Other Things To Do:
- Let your accounts age, helps credit score
- Keeping your account open for longer strengthens your credit score.
- Don’t apply for multiple accounts at a time.
- Applying for cards drops your score. It is a small and temporary change but applying for multiple cards can make that change larger. Space them out about 6 months.
- Too young for a card? Become an Authorized User
- Family and Friends can add you as an authorized user on their account. This helps you build credit even if you are younger than 18. Be careful though, the main cardholders’ mistakes can become your mistakes.
- Check your credit score
- You will want to know your score so you can improve it as you go.
It is really important for college students to begin building their credit scores, so looking to credit cards is a great way to go. Just remember to be responsible!