You just got into college, and finally, have a credit card. Sounds like a dream right!
Unfortunately, students are not very experienced with handling credit cards. And If used in the wrong way, can put individuals in a lot of trouble.
The biggest problem would be a huge dip in your credit score. Here are 5 ways students can ruin their credit score.
5 Credit Card Mistakes Students Must Avoid
1. Not Having a Budget
Budgeting is the most important thing that students must do. But, most find it challenging or they are terrible at it. Budgeting gives you an idea of how much money you have, what essentials you need to spend on and which purchases to avoid. Having a budget will help you understand if you have overspent and prevents you from using your credit card unnecessarily.
2. Missing or Late Payments
Never miss a payment. A late or missing payment causes the interest to compound. You will have to pay the late fees that will be added to the bill. In fact, missing payments reflect on the credit report for seven years, even if you make the account current. Even one late payment can bring your credit score down. This may give you trouble applying for loans or credits in the future.
3. Inability to Manage Student Loan Money
A front-end lump sum money is given as student loan. If you are inexperienced at budgeting, you may struggle to make that money last the entire semester. You might be tempted to use the loan money for impulse and unnecessary buys. It is important to prioritize the management of student loan money. Understand want you need to spend on and avoid splurging on things you don’t need. Keep an eye on all the expenses so you know where the loan money is being spent.
4. Frequent Opening and Closing of Accounts
Credit card companies offer freebies or attractive offers just to lure students into opening an account. Don’t open a new account just for the freebies. Opening new accounts means you will have more credit cards. Once you have multiple cards in your pockets, you may end up making impulsive purchases. The payments will keep adding up and if you can’t pay them, your credit score will come down. Moreover, opening and closing accounts frequently is deemed as suspicious activity.
5. Having Multiple Credit Cards
It may seem like a good idea to have more than one credit card. Because you can pay the bills easily with one card if you max out another.But, every credit card application may knock off points from your credit score. If you apply for multiple credit cards in a short period of time, the lenders will get suspicious of the activity. You might experience denials more frequently. Apply for new credit card one at a time and only when needed.
Lessons to Learn
If you maintain a good credit score right from college, it will benefit you in the future in getting loans easily. To view your credit score, check online and ensure you keep a positive score.
We teamed-up with Shiv Nanda from MoneyTap for this article. Read more about him here:
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan.