Credit in College: Easy to Get, Easy to Ruin
Credit cards: a steppingstone toward good credit
"The best time to get a credit card is in college," says Liz Pulliam Weston, the author of Your Credit Score, a guide to fixing and maintaining good credit. From the perspective of a credit card company, college students are the perfect clients: inexperienced enough to accrue interest, but still under the umbrella of parents ready to bail their kid out.
When choosing among the credit card offers hurled at you on campus, don't just look at how neat the giveaway is. Find a card with a low annual fee, no application fee, and a grace period of 20 days or more. Most important, make sure it reports to the three major credit bureaus. If not, you won't be building any credit at all. Most of the major names, like Visa and MasterCard, will do the trick.
At first, cards offered will have low credit limits and high interest rates. To maximize your credit score, spend lightly (about 30 percent of your limit) but regularly, and pay your monthly balance in full. "Just don't get in the habit of carrying credit card debt," says Pulliam Weston.
Credit cards: a stumbling block toward good credit
While a carefully maintained credit line is healthy for your future, going astray, even once, can be disastrous. Forgetful types should embrace the Internet and set up an automated, electronic system for paying bills. For students who change addresses every year or are just really disorganized, it's nice to not rely on a paper bill as a reminder.
As for spending, keep it in check. One of the most important factors in a credit score is what percentage of your credit limit you spend. Ideally, that's 30 percent. That means, on a starter card with a $500 limit, you should only be spending $150 a month. The closer you get to the limit, the more negatively that reflects upon you. Some banks, like Capital One, don't report credit limits, so bureaus will use your largest balance as a guide. If you end up spending around the same amount each month, it will look as if you're maxing out your card each time. Avoid this by checking your credit report and making sure the limit is accurately reported.
Overloading on plastic to boost your limit, however, is no solution either. "Don't go nuts applying for credit cards," says Pulliam Weston. She suggests two to three cards as plenty for the duration of college. And start off with one at first. Because it will most likely be a terrible deal, wait until you earn enough credit to get a better card, one with more rewards and one that you might want to keep for a long time. An aspect of your credit score is the duration of your credit lines, so if you switch cards too often trying to find the "right fit," you're likely to sabotage your score along the way. Before applying for a new line of credit, check cardratings.com and bankrate.com for a good match.