Graduating from college is exciting and so is getting a credit card. Because of all of the excitement, it can be easy to get carried away. However, you can use credit responsibly and make it work in your favor toward your future.
If you are a recent university or college graduate, you may be directly facing debt. You will now have student loans to pay back on an entry-level salary. There is also the credit card debt that you may have accumulated during your college years, as well as possible personal loans that you needed in order to get by. If debt has you worried, there is good news for you. For most young Canadian college graduates that have plastic in their wallets, the outstanding balance is typically very small.
According to a study conducted in 2011 that involved over 18,500 Canadian college students, nearly 90 percent of them had a credit card by their final year of college. However, 78 percent of the students said they paid their balances in full each month. The average outstanding balance among the students studied was just under $700.
One student who was questioned was an undergrad who was only weeks away from completing her psychology and English degrees. In addition to going to school, she worked two jobs so she could afford the necessities. She would pay for a lot of these necessities on her credit card so she could rack up points and pay off her balance before her due date. She did state that the card, which had a $2,000 limit, could lead to a great deal of temptation. She said if she went to a store and saw a bike for just $200, she knew she could just use her credit card to buy it.
Credit As A Student
There are plenty of advantages to being a student or new grad with a credit card. When there is a financial crunch, the card can tide you over. Credit cards are also easy ways to build up a solid credit history fast. However, using a credit card unwisely can lead to financial trouble. That is why it is important to know how to use a credit card.
Nonetheless, goal after obtaining the credit card is to have an established credit history so that when you enter the workforce, you have the credit history you need to buy a car when it is time and to eventually buy a home. Having a solid credit history that is established early greatly plays in your favor.
But be wise. If you are about ready to graduate, try to wait until you have a job to get a credit card so you can pay the bill. If you already have a credit card because you currently have a job, then make sure you are mindful of your purchase amounts and that you use the card responsibly. When you're living paycheck to paycheck like most college students and recent graduates do, one simple mistake when it comes to your credit card bill can be costly financially and personally.
How To Use Credit Cards
The moment you acquire your first credit card, it is important to create good habits from the very beginning.
The first tip is to get the job and then get the card. It is easy to apply for a new card right out of college. However, it is best to wait until you have an income to pay the bill, otherwise you might find yourself deep in debt with no money to pay it down.
The second tip is to keep it simple. While you may be tempted to apply for multiple lines of credit, credit cards, and loans when you start your first job, you need to hold back and slowly build your credit history. One or two credit cards will suffice in the beginning.
The third tip is to be choosy. You don't necessarily have to choose the credit card that is in your dad's wallet or the one that is offered by your bank. There are many credit cards out there that you can carefully evaluate and then make an informed choice. What is right for your parents or the other customers at your bank may not be right for you. Go with a card that has a low or non-existent annual fee and an interest rate that is reasonable.
The fourth tip is to take your card seriously. A credit card is more than just a way to buy stuff in a convenient way. When it is used wisely, the credit card will help you establish a solid credit rating. This means that you should not spend more than you can pay in a single billing cycle. Pay your balance in full each month and make sure that payment is made on time. Moving ahead with building a high credit score now will mean that you will get better rates on loans when you are ready to buy later.
The fifth tip is to be wise. Before you make a large purchase with your card, ask yourself if you can pay off the entire balance by your due date. If you can't, you may want to refrain from the purchase now. If you refrain now, you may be able to buy something better at a later time when you are able to pay the balance in full. This will be more economical for you and will teach you the discipline that you need now and in the future when it comes to making large purchases.
It is possible for young people to be responsible with their credit accounts. Whether a credit card, line of credit, or a personal loan, being realistic and knowing what your limits are will help you succeed with these accounts so that you can make larger credit purchases in the future.