Learn the truth about credit cards.
Somewhere, on some college campus, someone is sitting at a table trying to get people to sign up for a new credit card. Credit cards and college campuses go together like freshman and inexplicably large backpacks. Fortunately, the myths, rumors, and legend of one of these can be explained. No one knows what they keep in that backpack.
Annual fees are bad — Sometimes. The truth is you can probably make back what you spent on annual fees just by buying books for the semester—if you can cover most of your flight home at the end of the semester by buying books, that fee might make sense. Do your research to see if fees might work for you. There is no harm in avoiding fees if you don’t feel comfortable with them.
Carrying a balance is good for your credit — No. Just no. All you are doing by carrying a balance on your card is paying the credit card company more money every month in interest. Buying textbooks is bad enough, turning that $500 bill into $1,000 doesn’t help you at all.
Too many cards will ruin your credit — Sort of. Opening a new card can cause a slight dip in your credit score. However, your score will recover quickly if you’re responsible and make all monthly payments on time. Obviously, you shouldn’t take this as a reason to sign up for every card that comes to campus—you don’t need that many soft coolers. If you’re having trouble maintaining the cards you have, then adding more cards is going to cause more problems.
Get rid of the cards you’re not using — Don’t. Let’s say you did sign up for every card that stopped by campus. You’ve kept a zero balance on most of them for a while, so canceling them just makes sense, right? Not really. This can hurt your credit score. The best options are to either lock up the cards and never use them and be sure to negotiate away the annual fee, or put small reoccurring charges on cards you don’t often use. So spread out your Netflix, Spotify, and Amazon charges. Put a reminder on your calendar to pay them off each month.
Don’t accept a credit increase — Actually, you should. Just because you’re offered an increase in credit limit doesn’t mean you have to spend more and reach it. New credit (meaning an increased limit) accounts for 10 percent of your credit score. Every time the credit company offers you an increase you don’t use, they are helping to improve your score.
You don’t need a credit card, just use your debit card — Technically true; however, you will need credit for many big life purchases (ahem, car loan, home loan). And credit cards are the easiest way to build credit, especially when you don’t have any credit to start. Having one or two well-managed, regularly paid off credit cards won’t cost you any more than using a debit card, but it will establish your credit history.
The fact of the matter is, when it comes to credit cards, it’s all about research and responsibility. Avoid gimmicks and features you aren’t going to use. Know what it is you’re getting into. Set reminders on your calendar to make sure you pay off your balance each month, and budget for the expenses you put on your card. If you do these things and avoid the myths above, you’ll be well on your way to establishing a strong credit report.