Six quick ways to become credit savvy

College students are the largest identifiable segment of first-time customers for credit card issuers — and competition for the college market is fierce.

Although the CARD Act made it illegal for credit issuers to swarm college campuses offering T-shirts and free swag, young adults will undoubtedly be exposed to numerous enticing credit card offers.

When used wisely, credit cards can help you establish a respectable credit history, and serve as a valuable asset for future finance opportunities. However, when handled improperly, the resulting debt can become a terrible liability that can linger on past graduation.

With this in mind, the following are the six things everyone should know prior to opening a line of credit. You should know:

  1. Your budget. How much of your monthly income will go toward paying credit card bills? Monthly debt payments should not exceed 20 percent of your monthly take-home pay or monthly allowance.
  2. Your options. Look for cards with low interest rates, little or no annual fee, and a reasonable “grace period” to allow “free time” before finance charges begin.
  3. The risks involved. What would happen if you defaulted on the credit card agreement? Just a few late or short payments could have a huge affect on your interest rate and credit file. Once blemished, a good credit record is difficult to rebuild.
  4. Your limits. Just because you have a $1000 or $2000 credit limit does not mean you can afford to carry that high of a balance. Keep in mind that most minimum payments average four percent of the total balance owed.
  5. Due dates. One of the best things you can do to establish or improve your credit is to pay your bills on time. This isn’t limited to just your credit card bills or student loans, but also means your rent, utilities, and phone bills.
  6. The fine print. Before you sign any agreements, be sure that your interest rate won’t skyrocket in six months, and be sure that any ‘rewards’ you get aren’t outweighed by hefty interest rates. And remember, credit cards are not new money, free money or more money. They are just loans that you have to pay back!

The bottom line is simple. If you don’t have any extra money in your budget to repay the amount charged (including the interest!) within a reasonable time, you can’t afford to incur the debt. 

Tanisha (Warner) Smith is a former communications manager at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.