Credit Card Smart

With your first credit card comes a lot of temptation to overspend. But no matter how young you are, your credit card transactions become a part of your official credit report. Any negative information can plague you for seven years.

As a student you can think of your credit report as your “credit transcript” and your credit score as your “credit GPA.” Credit scoring was first developed by Fair Isaac Corporation, which created the most widely used scale referred to as FICO® scores. The scale ranges from 300 to 850. Scores above 700 are generally considered to be “good.” Paying your bills on time each month has the greatest affect on your credit score. The following factors also impact your score:

• Total debt
• Age of accounts
• Number of credit card accounts including number of new credit inquires
• The proportion of credit card balance to total available credit card limit

Things to keep in mind when it comes to credit cards. 

Credit Card Do’s:

• Stop charging!
• Use only for emergencies.
• Pay the balance in full each month or pay more than the minimum payment to reduce the principal balance.
• Ask questions:
  • What is the interest rate?
  • What is the payment schedule?
  • What are the various fees (late, transaction, etc.)?
• Limit the number of cards you have.
• Pay your bill on time.
• Keep copies of your sales slips and compare charges when your statement arrives.
• Keep your account information to yourself.
• File your information in a safe place.
• If your card becomes lost or stolen, report it immediately.
• Be aware of the repayment schedule and fine print on the agreement.

Credit Card Don’ts:

• Don’t sign up for a card just to get a free gift.
• If you can eat, drink, or wear it – don’t charge it or borrow for it.
• Don’t spend on impulse.
• Don’t spend the maximum credit limit. It all adds up!
• Don’t get more cards to pay off other debt.
• Don’t lend your card to anyone, even a friend or relative.
• Don’t panic. Go to someone for help if you get yourself in over your head.

Help yourself by keeping on track.

Divide your monthly expenses into two categories:

1. Needs
2. Wants

Unmanageable debt is one of the main reasons students don’t finish college. When their income doesn’t keep up with expenses, students often feel pressure to leave school for full-time employment. Credit card debt also contributes to bankruptcy, stress, and strains in relationships.

Shop around to get the best deal you can.

Fees, charges, and benefits vary among credit card issuers. When you’re choosing a credit card, shop around. Compare these important features:

• Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly interest rate.
• Grace Period is the time between the date of a purchase and the date interest starts being charged on that purchase.
• Annual Fees are charged by many credit card issuers for granting you credit. Some issuers charge no annual fee.
• Transaction Fees and other charges are added if you use the card to get a cash advance, if you fail to make a payment on time, or if you exceed your credit limit.

Negative credit reports can hurt.

Even before you graduate, your credit report may be reviewed by potential employers, insurance companies, landlords, and car dealerships. Businesses buy your credit report from credit bureaus as a tool to determine if you are a good credit risk – a responsible person who pays bills on time.

Federal law requires creditors to give you the name, address, and telephone number of the credit bureau that supplied information which was used in determining your eligibility for credit. You should contact the credit bureau within 30 days of receiving the denial to receive a free copy of your report. If you find an error when reviewing the credit report, you are entitled to have it investigated by the credit bureau and corrected at no charge. You should dispute any inaccuracy in your report with the credit bureau and with the company that furnished the information to the credit bureau. If your file contains accurate negative information, only time and good credit habits will restore your creditworthiness.

So, how important is that car stereo?  Let’s say you find that car stereo you’ve always wanted and just can’t live without. Even though it costs $2,000, you decide to charge it to your credit card. How much will it cost you in the end? If your credit card has a 16% annual percentage rate (APR) and you only make the 2% minimum payment, it will take you 291 months – more than 24 years – to pay off this debt. And, that’s assuming you don’t charge anything else to your credit card. In the end, your $2,000 stereo will cost you $7,926.84.

Check out the Federal Reserve – Credit Card Calculator. Based on the information you provide, the calculator will give you an estimate of how long it will take you to pay off your credit card balance.

The following are major national consumer reporting agencies:

EQUIFAX, PO Box 740241, Atlanta, GA 30374-0241, 1-800-685-1111, www.equifax.com

EXPERIAN (formerly TRW), PO Box 949, Allen, TX 75002, 1-800-682-7654, www.experian.com

TRANS UNION, PO Box 390, Springfield, PA 19064, 1-800-888-4213, www.tuc.com

~ Information courtesy of Truecredit, TransUnion, and myFICO®.com.