Graduating from college is stressful and slightly terrifying, but being financially literate can ease the transition and minimize the angst of entering the “real world.” Unfortunately, the real world isn’t like college: No more finagling later due dates out of professors and no more month-long winter breaks.
This is probably the first time in your life you’re earning a salary and supporting yourself, as your parents’ helpful funds slowly dwindle. So remember, the decisions you make now will affect your future, and you should work hard to have responsible habits that will help you build credit.
When it comes to credit cards for college grads, no one size fits all. But there are some basic principles to live by that will ensure you stay financially responsible.
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Getting a Credit Card
In today’s economy, getting approved for a credit card can be an arduous process. Even worse, denied credit card applications actually hurt your credit score. Therefore, make sure you do your research before you apply to know the different credit card options on the market. Many credit cards also have rewards programs, like frequent flyer miles or cash-back incentives, so pick the best option for your lifestyle. If you’re worried about being approved for a credit card, you can build credit by co-signing with a parent or using a secured credit card.
Live Within Your Means
Never charge more than you can afford to pay off in full when your credit card bill arrives. If you don’t pay off your balance in full, you can be slammed with high interest rates and quickly incur massive debt. If you know you won’t be able to pay the full balance, make sure to choose a card with a low APR (annual percentage rate of interest).
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Why Good Credit Matters
Your credit score impacts many facets of your life including obtaining loans, buying a car, getting insured, or starting a small business. To maintain a good credit score, always pay your loan payments and credit card bills on time. Make sure to check your credit report frequently to catch potential errors or identity theft.
Large Credit Card Purchases:
If you’re looking to make an expensive purchase, like a new flat screen TV for your apartment or a college reunion vacation, write down your financial goals so you can prioritize. First, divide your goals into short term and long term goals and decide which ones you’d like to accomplish first. Create an incremental timeline so that by each chosen date you have a certain amount of money you want saved. Make sure your timelines is realistic so you don’t disappoint yourself.
Next, look at your budget and calculate how much you can afford to save on a regular basis and add this as a category to your budget. When saving for something large, it’s especially important to not waste money on frivolous purchases. Stay on course by keeping your eye on the prize, whether this mean keeping a picture of the end goal on your desk at work or making it your phone’s background as a daily reminder. Every month, reassess your savings to see how things are going and to make needed adjustments.
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Credit Card Responsibility
Many colleges have student IDs that double as a form of payment around campus. If your parents are so generous, they can deposit money onto this card while you swipe your way through the bookstore, late night snacks, and laundry. Unfortunately, many students fall victim to the mentality that this is “fake money,” because they never actually see the cold hard cash. Similarly, many adults fall victim to this mentality when using credit cards. The problem with a credit card is that it won’t alert you when you’ve spent more than you actually have, like your student ID did.
Credit is Money
If you usually use credit cards, challenge yourself to only use cash. We have an emotional tie to cash because we can see the actual amount leaving our wallets, which may cause us to think twice about whether our purchase is a need or a want.
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