Dave Ramsey, author of 'The Total Money Make Over' and radio host, advises not to own a credit card if you want to live a debt free and peaceful life. I agree with him completely on living a debt free life but I disagree with him on not having a credit card. There are many advantages to a credit card. One of them being able to build a good credit score. You will need some credit to start off your life and put yourself towards success, unless you have the backing of rich parents or relatives.
Do students really need a credit card?
Yes, every college students need to own a credit card, not to stack up debt but to build the credit score. Banks are getting really aggressive and creative in their efforts on marketing credit cards to college students, which many people see as a negative point. But you could really utilize that to your advantage by using the credit card properly and building a good credit score. I really didn't see the importance of have a good credit score till I started working on Automotive industry. Many people were getting charged 17-24 percent interest rate on a car loan. Students come out of college with an expectation of conquering the world but they are disappointed when they start looking for a car as interest rates takes them backwards. In most cases, they need a co-signer or significant amount of money to put down to qualify for a car loan. You can avoid all those by building a good credit score.How do I build my Credit Score?
The best way to build your credit score is to start off with a credit card. There are lots of responsibilities that comes with a credit card and you need to be extremely careful to not abuse it. There are many students who have credit cards for various reasons. The most important reason of all should be to build your credit score. According to Dr. Robert Manning, finance professor at the Rochester Institute of Technology and author of “Credit Card Nation,” nearly 14 percent of college freshman have at least two credit cards. That number more than doubles (29.8 percent) among seniors. But less then 2 percent know the importance of credit score. Paying your credit card on a timely basis and never missing the payments is one of the major cause for good credit score. You should never miss the monthly payment on the due date. However, if you do miss it, make a point to pay it within 30 days of the due date. You will have to pay a late fee but it wont put any negative on your credit report. Paying your credit card on full every month should be your focus though. The point is not to stack up debt on the credit card but to use it wisely to build a good credit score.
How do I get a credit card?
You might be wondering how can you get a credit card when you don't have any credit. I was in that situation too when I started out. My parents didn't want to co-sign for me, which I tell all parents to completely avoid doing so, so I applied on my own. I was fortunate to get $300 credit card from US Bank. Now, I have various credit cards from Capital One, Chase, Discover and so on.There are lots of banks who will take a risk on you and start with small amount. The key here is to use it properly and they will increase your credit amount on a gradual basis. Even secured credit cards are best way of building your credit score. They are same like a regular credit card, except you have to give money to the bank as a security deposit. If you use it wisely, the bank will convert it to a regular credit card within a year and return your security deposit. I highly advise people not to get any credit cards with annual fee and activation fee when there are plenty of banks that don't charge any fee.
What benefits do I get on having a credit card on college?
The financial arm of Honda, Honda Finance Company runs a program to reward recent graduates with good credit score to get APR as low as 0.9 percent on a new car. If you have graduated in the past two years or will graduate in the next four months with a master's, bachelor's or associate degree and have 710 credit score, you will get the lowest interest rate. But the same is not available if you don't have any credit to start with.
Even though, I didn't know much about the importance of having a good score, I ended up having a score about 700 when i graduated from college. It helped me a lot when I financed my first car. Yes, I did want to pay cash instead of financing but I didn't have extra cash on hand to pay for a car. Having a good credit score during college helped me borrow 6k and convert to over 50k from stock market. How I made that happen is the topic that I will discuss on another blog.
There are many benefits of having a good credit score besides getting a car. Many companies have started checking the credit report before they hire someone. It's common sense for any company to know how you handle your personal finance if they are to hire you to take care of their finance.
Why all the fuss about banks targeting college students on congress?
Congressman are basically forgetting that students are responsible to take USA forward from where it is now. They want students to take care of all the responsibilities starting with living away from home, dating, having the right to vote, and start on a journey to build their career. But in the same time, they want students to stay away from taking care of their personal finance. No, credit cards are not responsible of building personal finance but it does give students insight on the finance. You cannot handle money once you start earning 50k, 60k, and up if you never had the responsibility of borrowing the money and paying on a timely basis. This is why there are many people who make a lot of money but are still broke on a higher level.
College is the best time to learn about your major and have good GPA. It is also the best time where you can start learning the responsibilities of your personal finance. You will have a head start on handling the significant amount of money that you will be making after graduation, unlike other who have never taken responsibility of the money. Even, if you do mess up you do have time to take care of your mistakes while you are still in college. It is not pretty to mess up when you are married and have kids to take care of. And once you start working and living your life, you will soon find out your credit score is much more important than your GPA.
