For a student heading to college during a time when being employed is considered a blessing due to COVID-19, financial literacy is crucial. Understanding how credit works could save you from carrying debt over several years. For college students, repaying student debt may be very difficult in future years. My advice is to learn how credit can either be a lifesaver or your worst nightmare if used incorrectly.
At seventeen I received my first credit card from Sandia Laboratory Federal Credit Union. My uncle acted as an authorized cosigner. I then started to use it to build my credit history.
Building credit takes time and cannot be accomplished overnight. You must be frugal with your purchases and not spend more than you earn every month. I opted for a $500 credit limit with no overdraft protection. This way, if I were to try to go over my limit, I wouldn’t risk being charged an additional fee on top of what I already owed; the card would just be declined instead. After the first month of using my credit card, I made sure to pay my balance in full before the due date. The number one way to tank your credit score is to make late payments. Avoid missing any payments, too, as that can negatively affect your credit score, at least for a season.
Credit bureaus will also look at your credit utilization when determining your score. This is the amount of money you spend out of your overall credit limit. Spending most (if not all) of your available credit could show that you spend money frivolously and may set your score back tens of points. Maintaining anywhere between twenty to forty percent credit utilization will show credit bureaus that you’re a well-rounded spender. This could potentially increase your credit score while also help you save more money by spending less.
By following these guidelines, you’ll be on your way toward a higher credit score and even earn cash back, depending on the type of card you choose.
Teens Can Get $100
SLFCU members age 13-17 are invited to submit an article on a ﬁnancial topic to be considered for publication in our Dollars & Sense newsletter and on our website. Teens are awarded $100 for published articles. Visit slfcu.org/TeenArticles for details, topic suggestions, and to submit an article. SLFCU will review all submissions and respond within 30 days.
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