Credit cards enable us to buy items with money that doesn’t exist. However, before you indulge and go “swipe crazy,” there are a few reasons you should keep bills and coins in your wallet next to the credit card.
Do choose a card with a low interest rate. Charles Collver, Ph.D., assistant professor of finance at the H. Wayne Huizenga School of Business and Entrepreneurship, suggests finding a card with no application fee and a good interest rate. Interest rates are either fixed or variable and it’s best to get the lowest fixed rate possible.
“Try to open an account at a reputable bank,” Collver said.
Collver said it is also important to ask about annual fees, interest rates, rewards, cash back, points, and travel. Make sure there is a grace period to avoid accruing interest from the first time you make a purchase and stay away from high interest rate mail offers and sign-up gifts, he said.
“There’s nothing free in life. They’re trying to make money off of you,” said Collver.
Do use the card wisely. Credit cards are good sources for building credit. However, there are boundaries. Good behavior is key. If you’re young, it is better to have only one or two credit cards and not exceed 50 percent of the limit. Having too many cards can ruin credit history, Collver said.
“If you have a job, a credit card is like an insurance policy,” said Collver. Dan Sullivan, Ed.D., director of first year and transitional programs, suggested using tuition payments for good credit. When the time comes to pay, do it in a way that improves your financial history.
“If you still owe money after tuition, put the rest on the card. When the loan comes in, use that to pay it off. Find smart ways to have good credit,” said Sullivan.
Another option is obtaining a credit card through your parents. They can get a card with your name and add you to the account.
“The good credit rating rubs off on you,” said Sullivan.
Don’t make unnecessary purchases. Sullivan said credit cards should be used only for emergencies and major or unexpected purchases, like a new tire.
“Don’t put the latte or anything less than $5 on it,” Sullivan said. “If you knew how much the latte was and pulled cash out of your pocket, you would realize how much you spent.”
Sullivan said it is important to understand how credit card companies operate.
“The problem is that you have to have a higher limit to get better credit. If your limit is $500, and you’re using $100 or $200 a month, it doesn’t make much of a difference,” Sullivan said. “Paying the same amount off monthly on a card with a higher limit helps improve your credit score.”
Don’t ruin your credit. If used wisely, credit cards can be very beneficial — but one wrong move destroys your credit rapidly.
“If you mess up once, your credit goes down dramatically and your conditions can go from 14 percent to 30 percent interest. If you’re disciplined, you’re good, but it’s the risk that you run,” Sullivan said. Collver said students should leave their cards at home when they think they will be tempted to use them.
“If you have good discipline, you don’t need to carry cash. If you don’t, it’s a good idea to carry a good amount of cash like $50 and not spend any more,” said Collver.
