When entering college, it may be difficult for students to be safe with their money, as credit card companies prey on people around this age, and living independently may lead to issues with budgeting and using money responsibly. Here are some tips and tricks on how to stay safe with money.
What are credit cards?
Credit cards are often confused with debit cards, as both are small, thin rectangular pieces of plastic that can be used to pay for goods and services. The stark difference between them is how the money you use to pay works.
Andrew Bloomenthal, a writer for Investopedia, explains what makes a credit card unique.
“A credit card is a [card] issued by a bank that allows cardholders to borrow funds to pay for goods and services. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest and any additional agreed-upon charges, either in full by the billing date or over time,” Bloomenthal said.
Basically, credit cards allow you to use a predetermined amount of money offered by the bank you apply to, that you can pay back at a later date. This is different from debit cards, with take money directly from your bank account, and do not need to be paid back as you are using your own money.
Credit cards can be incredibly risky for some, as using one can feel like having “free money,” as the consequences of your spending can take roughly a month for you to feel. However, there is also a risk of interest fees being added if you wait a certain amount of time to pay the money back.
Interest is a set percentage of your balance that gets added to the base balance as a certain amount of time goes on. Luckily, you should have a few weeks of grace before interest fees start to pile up.
“By law, credit card issuers must offer a grace period of at least 21 days before interest on purchases can begin to accrue,” Bloomenthal said.
It is important to be safe when using a credit card through budgeting, limiting yourself and talking to a financial advisor or similar person to help you through the process.
For those who want a credit card, you have to apply for one first.
How to apply for a credit card
To apply for a credit card, you must find up-to-date resources on what offers are currently available. It is recommended to use apps like Credit Karma, or similar personal finance institutions.
These resources can also provide information on your credit score, which is one of the most important numbers that can be associated with you, according to the Consumer Financial Protection Bureau.
“A credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports,” the CFPB states.
This number can range from 300– which is the lowest range and is seen as negative– to 850, which is the highest possible score. A “good” credit score is usually close to 700, with lows of 670.
You can improve your credit score by paying off any type of debt, including student loans or credit card payments. Paying bills on time, opening multiple diverse loan accounts and applying for new credit opportunities can also boost it.
Matthew Ingram, a senior lecturer at WSU and the director of the financial wellness center, stresses that you should apply for a credit card as soon as possible, if only to raise your credit score.
“Apply for a zero annual fee card as soon as you have a bank account,” Ingram said.
You can apply for a credit card through personal finance institutions or by visiting the banks themselves. Most people choose a credit card based on the benefit it offers– which is referred to as “rewards credit cards” by Bloomenthal.
“Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers and cash back on purchases,” Bloomenthal said.
By spending money with a credit card, some offer these unique benefits over time as an incentive to keep customers using their card. There are also some cards that target specific demographics– like college students.
How to stay safe using a credit card
It is essential to do plenty of research into the institution you plan to apply for a credit card through, as many cards may have high interest rates or even a yearly fee that you have to pay to continue using the card.
It is recommended that you visit a personal finance advisor, take personal finance classes or talk to someone you trust before you invest in a credit card.
“FIN 2050, Personal Finance Decision Making, is a part of the Wright State Core Curriculum; I highly recommend the class,” Ingram said.
Unfortunately, it is very easy to fall victim to scams, or to convincing talks from individuals who seem trustworthy. Credit card companies often target college students for their inexperience with money.
“College students are a credit card company’s prime prospect. They like to get you while you’re young for a couple of reasons,” LaToya Irby from the balance stated.
“First, they have a strong hunch that your parents will bail you out if you run up your credit card bill. Second, you have a long credit life ahead of you. That means lots of years of interest payments for the credit card companies,” Irby said.
Some companies may even approve students who do not fit their criteria, due to their reliance on the above arguments. This makes proper research even more important.
Ultimately, it is essential that you budget when using a credit card, as you must have the money to pay back any credit card fees before interest rates start and you begin to pile up debt.
“Never buy anything on a credit card that you will have to finance, [or] keep a balance, for longer than a month. Credit card debt, also known as unsecured credit, is very expensive,” Ingram said. “Only use a credit card if you could make the purchase in cash, but you would rather use the credit card; this way, you always have the credit card balance in your bank account ready to go.”
Credit cards can also be used for emergency purchases; it may be a good idea to allocate some of your budget to building up an emergency savings account to be used in unexpected situations, like car failure, personal injury or other emergencies.
Another tip for budgeting, as provided by Ingram, is to track your spending habits. If you make a dedicated budget and assign weekly or monthly spending on certain topics, you will be able to end up with a surplus of money each month. This means that you spend less than you earn.
Using a credit card should be an easy, but careful, process in your life. If you want more tips on how to safely use credit cards or how to budget, you can also visit the Wright-Patt Credit Union, as they have an office in the Student Union.
You can also visit the Financial Wellness Center, which works in collaboration with the Wright-Patt Credit Union. They work to ensure the WSU community is capable of responsibly spending and saving their money.
