7 Credit Card Tips for Soon-to-Be College Grads

A credit card is one of the best ways to start building credit. Here's a plastic primer for soon-to-be college grads.

We get it, soon-to-be-grad, you’re busy. Finals need to be taken; dorm rooms need to be cleared out. Jobs need to be procured — as does your very first apartment. But amid all these big changes, you’ll also want to make time for some good old fashioned financial literacy. After all, money management is critical to your success in the so-called real world. And, believe it or not, having a credit card can help your overall financial health. Of course, that’s only if you use that little piece of plastic responsibly, so, to help you come out ahead, here are 7 credit card tips for soon-to-be college grads.

1. Get One

Sure, there are plenty of reasons to be wary of plastic. But a credit card is one of the best ways to start building credit — and you’ll need a solid credit score when it comes time to get an affordable auto loan, mortgage, insurance policy or more. If you don’t have a credit card already, you’ll probably need to look into secured credit cards, which require an upfront deposit that serves as your credit limit and are designed specifically for people with thin or bad credit. If you were using plastic while in school, you may be eligible for an unsecured card with better terms and conditions. Of course, that’ll come down to what your credit looks like already. (You can see where you stand by viewing two of your credit scores for free on Credit.com.)

2. Pay Your Bills on Time …

The number one rule of credit cards? Pay your bills on-time each and every month. If you don’t, you’ll likely be hit with a late fee, face a penalty annual percentage rate (APR) and damage your credit — seriously. A first missed payment can cause a score to drop 100 points or more.

3. … & in Full Each Month

Or, at the very least, keep the total amount of debt you’re carrying on the card below at least 30% and ideally 10% of your total available credit limit. Any balance over that could hurt your credit utilization rate, which is the second most important factor among credit scores.

4. Monitor Your Statements

Do it even if you’ve signed up for auto-pay, because fraud, unfortunately, can occur at any time. Plus, you’ll want to be sure your balances aren’t burgeoning out of control. Check statements every day or at least once a week. Make small payments if those balances are starting to climb too high and be sure to report any suspicious activity your spot right away to your issuer.

5. Upgrade When You Can …

The better secured credit cards on the market (go here to check those out) usually provide cardholders with automatic reviews after 6 to 12 months of use that’ll determine whether they can get their deposit back and possibly receive a credit limit increase. Make a note of when you’ll be eligible for that type of upgrade and keep an eye on your credit as you use your card. You may be able to build a score solid enough to qualify for not just an unsecured credit card but a rewards or low-interest piece of plastic.

6.  … But Resist the Urge to Churn

Be prepared to encounter big signup bonuses as you shop around for new plastic. (Example: Earn $150 when you spend $3,000 or more in your first three months as an accountholder.) But refrain from applying for every offer you see. Yes, an extra $150 or a boatload of bonus miles are nice, but too many new credit inquiries (which are generated each time you fill out a credit card application) can damage your credit score and make it harder to qualify for important financing down the line.

7. Know When to Stop Charging

If your spending starts to get out of control, put your card on ice. Literally, if you have to. (That’s actually a better bet than formally closing the card, which can hurt your credit score, though you can do that, too, if absolutely necessary.) Next, come up with a plan to pay down those debts. Rework your budget to come up with some extra dollars you can put toward your balance and, if you’re carrying debt on multiple cards, prioritize payments. Make the minimum payment on all your cards but put the most money toward the balance with the highest APR (which can lower the total cost of your debt.) Alternately, you can pay off the smallest balance first, which could keep you motivated as you work to get back into the black. You can find more strategies for paying down credit card debt right here.

Looking to do some more financial planning pre-diploma? We’ve got 50 money moves you should make before graduation

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I’m 27 & I’ve Never Had a Credit Card. Should I Get One?

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Considering all the debt disasters young people witnessed and read about during the financial crisis, it’s unsurprising that credit cards aren’t a popular financial product among today’s 20- and 30-somethings. Several surveys of millennials have found that consumers that age are often debt-averse and favor other forms of payments over credit cards.

As someone who falls into that age group, I know a lot of people who meet that description. One of them recent sent me a text asking if he should change his approach:

“I’m 27 years old. I never had a credit card. Do I need one?”

Most people don’t need credit cards. You can function just fine in society without a credit card (some would argue you’re better off without one), and they’re not the only means to establishing a good credit score. But they can be incredibly helpful.

Whether or not someone in this situation should get a credit card depends on a lot more than their age. If you’re having similar thoughts and are wondering if you should apply for a credit card, here are some questions you need to ask yourself first.

1. Do I Have Any Credit?

One of the biggest reasons to get a credit card is to help you build credit. Without credit, getting an auto loan can be extremely difficult, and getting a home loan is pretty much impossible. It’s very common for young people to start building a credit history when they take out student loans or get an auto loan with the help of a co-signer, but if you don’t have any credit history, you need to start somewhere.

People who need to start building credit or rehabilitate bad credit often choose to get a secured credit card as a way to establish good credit behavior, because secured cards, which require you to put down a deposit that serves as your credit line, are generally easy to get. Once you have the card, you’ll want to keep your card balance as low as possible and always make payments on time.

If you already have a credit history, you can still benefit from getting a credit card, because having a variety of credit can also improve your credit score. Using a revolving credit line can add depth to a credit file with a student loan in it, and if you pay off the credit card balance each billing cycle, you’ll be building credit without incurring debt.

2. Do I Have Any Savings?

Credit cards also serve as a good emergency tool. Ideally, you have an emergency fund to cover your expenses in the event of a sudden income change or major, unexpected car repair, but if you don’t, a credit card can help you make ends meet in a pinch. In that case, you’d want to use a credit card with a low interest rate and immediately make a plan to pay off the balance as soon as possible. Credit card debt can quickly get out of control and end up taking years to repay, if you’re not careful.

3. Can I Handle a Credit Card?

Having a credit card requires a lot of self-control and some organizational skills so you don’t spend beyond your means (and end up in debt) or miss payments (and end up with credit damage). If you decide to get a credit card, take the responsibility seriously. Keep track of your transactions, set bill-pay reminders or automatic payments to make sure you don’t miss your due date and keep an eye on your credit scores to see how your credit card use affects your credit standing. You can get two credit scores for free on Credit.com every month to track your progress as you build a good credit score.

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I Have Ridiculously Bad Credit. Can I Get a Credit Card?

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Is your credit so bad you get pre-declined credit card offers in the mail?

OK, that’s a joke — a bad joke — but bad credit is obviously no laughing matter. It can keep you from accomplishing your personal financial goals, and it can be expensive. People with bad credit typically pay higher interest rates, higher insurance rates, can be turned down for jobs and rental housing and, of course, can have a hard time getting a credit card.

In general, credit scores below 600 (on a scale of 300-850) are considered “bad.” Here’s a quick breakdown:

  • Excellent Credit: 750+
  • Good Credit: 700-749
  • Fair Credit: 650-699
  • Poor Credit: 600-649
  • Bad Credit: below 600

If you’re in the bottom category, don’t despair. Not only can you improve your credit score to get a credit card, a mortgage or other financial dreams down the road, chances are you can get a credit card right now to help you on your way toward that better credit score.

The first step is knowing what your credit score is and whether everything on your credit report is accurate. (If you don’t know where your credit score stands, you can pull your credit reports for free each year at AnnualCreditReport.com. You can also view your credit scores for free each month on Credit.com.)

If your bad score is valid, you can work to improve it by getting accounts out of default, paying down high credit card balances and limiting new credit inquiries.

Your Options

Once you know where your credit score stands and you’ve corrected any errors, you can look at applying for credit cards created specifically for folks whose credit scores need some improvement. Most likely, you’ll need to start with a secured credit card from a reputable bank that has a reasonable annual fee.

Secured credit cards can be helpful for people trying to fix their credit or establish a credit history for the first time. Issuers negate some of the risk of doing business with such consumers by requiring a deposit to open the account. That deposit serves as the cardholder’s credit line, and beyond that, the card works like most other credit cards: You make purchases, and every billing cycle, you make a payment. If you don’t make your payment, however, the issuer can take your deposit.

Remember, your bad credit doesn’t have to last forever. Most negative information stays on your credit report for seven years (bankruptcy may remain on your report for up to 10 years). And the sooner you start establishing and maintaining solid lines of credit, the sooner you can improve your credit score, and your ability to get a non-secured credit card.

More Credit Card Reads:

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