Managing your credit in the real world

Last time we spoke with financial consultant Peter Bielagus about how to manage a budget. Now, professor of finance Neil Cohen takes us through applying for a credit card – even without a credit history – and the best ways to maintain a good credit score.

Cohen says students are ideal prospects for new credit cards because banks, even during the recession, need to bring in cardholders. Students should capitalize on this need by shopping around for the best rates and rewards.

Apply online

Shopping for credit cards online gives students a faster, easier way to shop for and compare multiple cards. Some require parental approval for students under the age of 18, but not all.

Manage your credit score

Cohen says a student’s credit score is essential because the higher the score, the lower the interest rate when a student graduates and applies for an auto loan or mortgage. Even the slightest increase in an interest rate can cause a large increase in a monthly payment, immediately increasing the total cost of buying a car or an apartment.

Pay with credit only if you have cash for it

A $10 box of pizza can become a $100 pizza if students do not pay the minimum payments regularly or on time, Cohen says. Students should only use a credit card if they have the cash to cover the payment. Also, if students pay off the bill before the grace period ends, banks may hand out rewards for being responsible, Cohen said.

Never carry a balance

Students should realize that balances due could easily spin out of control. As a recent grad or student with a limited income, they should never carry a balance “because it is a beast students are ill-equipped to handle,” Cohen says. At the minimum, always pay the balance down on time, but earlier if you have some spare cash.

Annual fees are unacceptable

Credit cards earn money when students use them, so Cohen suggests students always look up the annual fee for a credit card before signing up. If the annual fee is more than $0, don’t even consider the credit card, he says.

Avoid silly fees

Keep track of all payments and remember credit limits. Sometimes, banks penalize cardholders for simply missing their payment deadlines by a minute. “Develop good credit card habits and students can use them like a tool, rather than a crutch,” Cohen says.

Know when to walk away

Students should not be stubborn with credit card responsibilities, Cohen says. “If students know students can’t spend within their means, cut up the card, focus on paying down debt, and live a cash-only lifestyle,” Cohen says. u

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