Getting your first credit card can feel so exciting, but it’s also a huge responsibility. Use a credit card correctly and your credit score will increase. Use it incorrectly and your credit could be destroyed.
Here are some of the most common credit mistakes to avoid in college.
1: Overspending to earn credit card bonuses
Some credit card companies provide sign-up bonuses when you open a new account. Usually the requirement is that you have to spend a certain amount within the first 90 days.
Depending on your income and expenses, these bonus requirements may either be realistic or nearly impossible to achieve. If you sign up for a credit card and spend more than you can afford just to earn the bonus, you may not be able to repay the full balance – and end up paying a hefty amount in interest.
That interest fee may wipe out the bonus, thus negating the whole reason you went over budget.
2: Losing out on a 0% APR offer
Consumers who open credit cards with special 0% APR offers should monitor these accounts carefully. If you miss just one payment, the card company could revoke that 0% offer and start charging interest for the current balance. This could result in hundreds of dollars in unexpected interest if you can’t repay the balance immediately.
Set up autopay so you never miss a payment. Schedule it so the bill goes through a few days before the due date, then monitor the account to ensure the payment went through correctly.
3: Paying an annual fee
Some credit cards, especially travel and other rewards cards, come with an annual fee. Many card issuers will waive it for the first year, so it can be a surprise to see a $95 charge on your credit card statement in year two.
It’s usually best to avoid cards that charge an annual fee, unless you’re maximizing all the card benefits. If you were recently charged an annual fee, call the credit card provider and ask them to cancel the card and refund the annual fee. Most will process a refund within the first 30 days.
4: Not discovering fraud until it’s too late
According to the Fair Credit Billing Act, credit card customers have 60 days to dispute a charge. Once you miss that 60-day mark, you’re responsible for any charges – even if they’re fraudulent.
That’s why it’s important to monitor your credit card statements regularly and look for transactions you don’t recognize. Set up a weekly reminder to go through and double check all your expenses and their amounts.
If you don’t recognize a transaction, try Googling it before disputing or marking it as fraud. Sometimes vendors will use a different processing name than their common business name. If you still don’t recognize it, dispute the transaction online or over the phone.
5: Opening too many new accounts
The average age of your credit accounts makes up 15% of your credit score. Every time you open a new account, it will decrease the average and potentially harm your score. Opening too many new accounts makes it seem like you don’t have enough cash to cover your bills, which is why credit bureaus give so much weight to this metric.
Opening a new account also incurs a hard inquiry on your credit report, which will lower your score even further.
6: Keeping a balance because you think it will build your credit score
Some cardholders keep a small balance on their credit card – and pay interest on it – because they think it improves their credit score.
Credit bureaus don’t award extra points for not paying off the entire card balance at once. What actually helps is to make some small purchases on the credit card, wait for the statement to be posted and then pay off the entire balance. This will show you’re a responsible card user.
7: Not signing up for autopay and missing a payment
On-time payments are the most important factor in determining your credit score, making up 35% of your total score. When you miss a payment, it’s reported to the three credit bureaus: Equifax, TransUnion, and Experian. According to Nerdwallet, one payment that’s 30 days past due can knock 100 points off your credit score.
The easiest way to avoid a late payment is to set up autopay directly through the credit card website or mobile app. Using your bank’s bill pay feature is another option, but there’s more room for errors when you’re not going through the card provider.
It may take one billing cycle before autopay kicks in, so you should double check that it’s gone through. You should also set reminders in your phone or calendar to ensure the payment has been submitted correctly.
8: Buying something you can’t afford
When you purchase something you can’t repay immediately, you’ll have to pay interest on it. In 2020, the average APR for a student credit card is 16.04%. If you buy a $500 TV and only make the minimum payments, you’ll pay $166.29 in interest.
Before you swipe the card, check your bank account to see if you can actually afford to repay the balance in full. If you can’t, then you’ll need to save up for the item, wait for it to go on sale, or find a way to make more money.
Credit mistakes matter – and will follow you for a while
Having good credit is the first step to building a solid financial foundation. Having bad credit will cost you. If you have a low credit score, you’ll need to get a cosigner for an apartment and may have to put down a deposit for utilities.
A less-than-stellar credit history could even increase your car insurance premiums or affect your ability to get a cell phone plan. Some potential employers will check your credit during the hiring process, especially if you work in law enforcement, finance, or the military.
It can take months or even years to rebuild a low credit score, especially if you have a new credit profile.
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