Credit cards are a simple way to establish credit, which you will need when making big purchases, such as a car and eventually a home. They are also good to have in case of emergencies, and reward programs make them extremely attractive to use for routine purchases. However, it is vital to recognize that unpaid credit card balances are constantly accruing interest in addition to the original amount charged, and that you are responsible for every penny.
Many young adults are lured by the ease of ‘the swipe’- an outfit here, a meal there, a trip (just this once!)- and before you know it, the balance becomes unmanageable. Don’t fall into this trap! As a general rule, don’t use your credit card for more than what you can immediately repay, and make sure your card provides maximum value. Click here to check out Georgia’s Own Student Visa, which has an extremely low rate and earns ScoreCard Bonus Points on every purchase, and here to read a post on responsible credit card use!
Whether you’re 15 or 22, the best time to start building credit is now. Although your parents may still be supporting you, soon the time will come for you to begin paying for things on your own, and in today’s society, it’s important to establish your credit. Good credit can help when buying a car or even renting a place to live. You may be thinking it’s tough for someone your age to begin building a credit score, but we’re here to provide some tips on how you can get started.
Open a Checking or Savings Account:
Although this fact is often overlooked, lenders see checking and savings accounts as signs of stability. They want to know you have several years of experience managing your own money. An i[check] checking account from Georgia’s Own is free with no annual fees or minimum deposits. Always keep an eye on your account and never overdraft or bounce a check as it will show up when lenders are reviewing your credit report.
Get a Credit Card:
If already have some credit history and you’re able to qualify for a new credit card, this is a great way to build your credit. If you’re unable to open an unsecured credit card (a “standard” type of credit card), you can open a secured credit card. A secured card is a line of credit that requires you to put up collateral (a borrower’s pledge of specific property to a lender, to secure repayment of a loan) and usually has a smaller credit limit. Another option is to apply for a student credit card. They often have low limits and low credit requirements, but be careful to use the card sparingly and always pay off the balance as soon as you can – never pay interest!
Guidelines For Smart Credit Card Use:
- Keep credit card debt low. Use your card regularly, but don’t spend money you don’t have.
- Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. To raise your limit, consider a no-fee credit card.
- Don’t take out cash advances.
- Keep accounts open for as long as possible, especially if doing so is cost-free. This raises your average account age and your total credit limit.
- Don’t open too many new accounts all at once. This lowers your average account age.
Apply for an Installment Loan:
Installment loans are loans that are repaid with a fixed number of equal payments, generally paid off monthly. A student loan is one example of an installment loan and is a great way to begin because it can be acquired easily and carries low interest rates. Another good thing about a student loan is that you don’t have to start paying it off until six months after your graduation, but the loan won’t appear on your credit score until you begin paying it off.
Monitor your Credit Report:
All credit reports are maintained by three major bureaus: Equifax, Experian and Trans Union. If lenders are saying anything about you, you are entitled to a free look at your reports. Even if you have done nothing to establish credit, you may already have a credit report. Identity theft is one way that this could happen and it could damage your score if the thief accumulated large amounts of debt in your name. You will want to clear this up before you begin establishing your credit.
Manage your Money Wisely:
Once you have opened an account or obtained a credit card, it is imperative to maintain good money management. Paying all of your bills on time is very important and applies to credit cards, loans, mortgages, cell phone bills, etc. Once you receive a bill, put a reminder in your smartphone or on your calendar about the due date, or better yet, pay it off immediately. You can also set up automatic payments which makes it easy on you so that you don’t have to worry about due dates. Automatic payments are recurring payments that will be applied to your account each month you have a minimum payment due. Also, as mentioned previously, keep an eye on your account so that you don’t overdraft or bounce a check. Most institutions, including Georgia’s Own, have free online and mobile banking which give you 24/7 access to your accounts.
Your Credit—or FICO—Score Is Calculated by 5 Factors
- Payment History: Your payment history accounts for 35% of your credit score. The goal is to establish a record of full, on-time payments. Recent history is given more weight.
- Amounts Owed: Your debts account for 30% of your credit score. Credit bureaus look at both your total debt and your debt-to-credit-limit ratio which is the amount of credit you are using compared to your credit limit. Not all debts are bad, but loads of credit card debt is definitely frowned upon.
- Length of Credit History: How much history you’ve already established accounts for 15% of your credit score. This can make it difficult for folks just starting out.
- New Credit: Recent credit acquisitions account for 10% of your credit score. It looks at how many new accounts you have applied for recently and when the last time you opened a new account was. The score assumes that if you’ve opened several new accounts recently, you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt. New accounts are handled with suspicion.
- Types of Credit Used: The types of credit utilized account for 10% of your credit score. It’s helpful to diversify.
So I wanted to let everyone know some exciting news from Georgia’s Own. GOCU and i[x] are proud to announce your newest benefit of membership: BALANCE Financial Fitness Program.
BALANCE is a free and confidential money management tool to help you stay on the path to financial freedom. Whether you’re interested in developing an easy spending and savings plan, getting out of debt, taking a look at your credit report, or buying a home, i[x] and BALANCE can help. They have chapters for you to look over and even provide a quiz to allow you to test your knowledge of the subject.
BALANCE also has counselors available throughout the day to answer any questions you might have. To use the program, visit BALANCEpro.net or call 888-456-2227 to begin taking advantage of this FREE resource!
OK, so you see me posting stuff about having good credit, maintaining a good credit score and paying off credit card bills, but you may be asking “Do you have a credit card?’ Well the answer is no, but I am about to start the process of obtaining one and wanted you to be able to follow the journey and see for yourself how it works. I know many of you may be like me in that you may have little or no credit history. So, I will be calling the credit card company tonight to see what I need to do to get approved for a card. I will try to post an update later. Follow me on Twitter for play-by-play.
Do you have an opinion on this? A lot of parents out there do. Good Morning America aired a segment on ABC this morning where they sat down with a group of parents and Mellody Hobson to discuss this hot topic.
The interesting finding? Of the parents polled, 71% said that they are opposed to giving their kids a credit card before the age of 18, but GMA financial contributor Mellody Hobson disagreed with these parents. Check the article out and decide where you stand on this issue.
Give us your feedback below on why or why not you agree and what age you think is credit card appropriate.
You may have heard recently about the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) that went into effect February 22, 2010. You may not, however, have taken the time to look it over.
Smartmoney.com has a great article that outlines the main changes that you need to know about. These things do affect you if you have, or plan on getting, a credit card. Rules have especially changed for college students. If this is you, take a few minutes and check out the article, because when it comes to credit, ignorance is not bliss…it’s downright dumb.
Credit cards can be a tricky thing. They can be a great tool by helping raise your credit score, but they can also dig you into a rut if you don’t know how to properly use yours. Here are some helpful tips if you have a credit card or are considering one:
1.Picking the right card is important. Look for companies offering the lowest interest rates possible. Also, try to find a card that gives you points back. So if you are a traveler, there are cards available to help you earn points for airplane trips. Or there are cards that will support charitable organizations. These allow you to earn a little extra instead of only points towards your credit score.
2.Pay off your balance every month. If you can’t pay it off in full, at least try to pay a little more than the minimum. This will save you money on interest charges and also enhance your credit rating.
3.Protect against fraud. Make sure to keep an eye on your monthly bill for any unusual purchases. Use caution when using your card number over the phone or Internet. If you ever suspect anything unusual is going on, report the activity to your provider immediately.
Do any of you guys have credit cards and want to shed some light on using it the right way? Anybody else have questions they would like to ask? If so, please share in the comments section below.