Your Debt Threat

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Using credit cards to build your credit score can be a very effective means to establish good financial habits and credit-worthiness. But, you have to be very careful as credit cards, if used irresponsibly, can wreck your credit rating in a very short period of time, and cause damage that will take years to overcome. When used responsibly, however, they have the reverse effect…a great credit score, in a short amount of time.

Getting Started With Credit Cards

One of the more common problems for people when they’re just starting out with credit cards is that they have little or no credit history. It’s a Catch-22, because how can you get a credit history without a credit card? Fortunately, credit card companies have become much more open to issuing credit cards to younger consumers, or those with little credit history. Here are some other options:

Secured Credit Cards

Secured credit cards commonly require you to maintain a balance in a checking or savings account that can serve as “collateral” in the event that you miss or are late on a payment. For example, a $500 line of credit must be balanced with a $500 balance in the account.
Credit Cards Issued by Retailers

Credit cards that are issued by major retailers like Sears or Target (for example), are typically easier to get because those stores want you to do business with them. They often come with a very low credit limit, but if used responsibly, they can help to establish your credit score, and make you a more attractive risk for the major credit cards.
Getting a Co-Signer

A co-signer with good credit, typically a parent, is another common way to build your own credit score. Basically, they are liable for your charges if you fail to comply with the terms of the payment plan. But if you handle credit well, they may give you the option of removing the co-signer’s name from the account.

Smart Credit Card Management Habits

Pay your Bills on Time and Pay More than the Minimum

This rule is listed first because it is the single biggest factor in responsible credit card usage. The importance of honoring this rule cannot be overstated. Paying your bill on time is the easiest way to indicate to lenders that you are a conscientious and reliable manager of credit.

Paying more than the minimum is also an excellent habit to get into, as the minimum payment generally required is only about 2% of the balance and most of that will go to the interest, and very little is applied towards the principal.

Reduce Credit Card Balances

Credit card balances are generally referred to as “unsecured debt” in the lending industry, and because they are unsecured by any collateral, they pose a much larger risk for default. A good rule of thumb is never borrow more than 30% of your credit limit.

Outstanding debt accounts for approximately 30% of your credit score, and the larger the balance on your credit card, the more of a ‘risk’ you appear to be. Plus, depending on your interest rate, a higher balance can literally cost you thousands of dollars, thereby making it even more difficult to pay down the principal.

Always pay more than the minimum required on each credit card statement and you can reduce those balances more quickly that you might think!

Avoid Balance Transfers of Credit Card Debt

The credit card industry is fiercely competitive, and they are always trying to steal customers away from each other with introductory rates that make them seem like a more attractive option. But, after a period of time, those rates always go back up which, unless you are able to pay the balance in full, result in very little savings to you. Plus, as far as the credit bureaus are concerned, debt with one card is the same as debt with another, which does not aid you in your quest to build your credit rating.

As you can see, there are many ways that credit cards can positively and negatively affect your credit rating. But, if you are using credit cards to build your credit score, a little caution and a lot of careful money management will make all of the difference, and you will be able to negotiate with lenders from a position of strength that opens up all kinds of other options for you.

The use of credit cards by students is at an all time high, and each year more and more students and young people are signing up to use credit cards. The alarming increase in these numbers has generated a lot of concern from various sources about the easy availability of credit cards and the potential pitfalls of irresponsible credit card use. But there is significant benefit that student credit cards can offer, including the opportunity for young cardholders to learn how to manage and build credit.

An alarming percentage of students and young people are already more than $10,000 in credit card debt and to complicate things even further, many of these students have yet to start earning a stable income. Financial responsibility is something that has to be taught at home, but most parents do not have the time nor the patience required to adequately guide their children about the vagaries and responsibilities of using and managing credit wisely.

The cornerstone of proper personal financial planning is living well within your means. But peer pressure plays a major role in a student’s life and, for young people in particular, it is extremely difficult to ignore the latest trends. Easy access to student credit cards is part of the problem for students trying to establish and build credit, and it has become very difficult to avoid credit card offers that allow students to complete a “brief” application form and obtain a credit card in such a short amount of time.

But wise use of these credit cards can help those students who might otherwise struggle to pay their college fees and meet their day to day expenses as well as those who are just looking to get an early start on building their credit. Credit card issuers have recognized the market opportunity and have been offering increasingly competitive student credit card offers everyday.

Another distinct advantage of having a student credit card is that it helps in starting the process of building a good credit history. Starting to build credit early will go a long way for young people trying to establish a financial track record prior to that first car or first home purchase.

A highly recommended alternative of an unsecured student credit card is a debit or prepaid card with a credit limit. Money for purchases made on this card is just deducted from existing funds deposited in the student’s account and when the spending reaches the limit, the student simply is not allowed to make any more purchases.

Before you decide to get a student credit card, you should pay special attention to any fees, exclusions and restrictions that might limit the use of the card. Also, lookout for the rewards they are offering and then compare the overall costs that you have to bear. Also, don’t forget to check for balance transfer transaction fees, blackout dates on rewards offers or for any restrictions or limitations which will fall under the terms and conditions.