Starting College – Credit Card Tips For You

CollegeParents hope for a better life for their kids and it starts with helping after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.

 

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Ways To Boost Your Credit Score

Credit CardsEach time you whip out your credit card, your purchase and how and when you pay it off contribute to your credit score. That score can determine – or wreck – your ability to buy big-ticket items such as homes. If your score’s low, here are ways to give it a boost.

 

The most commonly used credit score, vital to your financial health, is from Fair Isaac Corp. (FICO). Scores max out at 850. Congratulations if you’re at that level; most people’s score fall short of those heights.

 

Each lender interprets your score differently. Consensus calls any score above 750 excellent, around 650 fair and less than 600 poor.

 

The closer you are to 750 or above, the more likely a lender will approve you and charge you lower interest rates, possibly as much as a percentage point or more lower for every 100 points on your FICO score.

 

Improving your score. First and most important, pay all your bills on time. Late and skipped payments can really hurt your standing.

 

Next, keep balances on your credit cards as low as possible. Maintaining balances that are lower than your credit limit can also raise your score.

 

Paying off your debt is wiser than moving debt from card to card. Pay off the credit cards with the highest interest rates first.

 

A wallet full of new (that is, with no balance yet) plastic may seem like a handy shopping tool. But every time you apply for and open a new credit account, your score goes down; be prudent with those unsolicited applications littering your mailbox.

 

Seeing your report. Your FICO score summarizes your credit risk and is based on your credit report. Inspect your report at least annually.

 

Each year you can receive a free copy of your credit report from www.annualcreditreport.com. Reports are provided from the three major credit-reporting agencies (EquifaxExperian and TransUnion).

 

The ideal credit holder, in the eyes of the agencies, holds a job for some time, owns a home or rents an apartment for several years, uses just a few credit cards and pays the balances on time. The bureaus also like cardholders who carry some balances – usually 30% or less of the credit limit – because card issuers make money from interest on those balances.

 

Determine if your reports contain inaccuracies. Contact the reporting agencies with the correct information – incorrect information can lead to a denial of credit or your unfairly paying a higher interest rate.

 

Your dispute might also now have more teeth: The big three agencies recently agreed to change how they handle errors and list unpaid medical bills. Consumer advocates touted the development as the broadest credit-industry overhaul in years.

 

A low credit score can cost you significant time and money. Do all you can for a higher score and a winning financial life.