We aren’t naive. We know it’s only a matter of time before you use “the card.” But before you start racking up charges, we want to let you know what you’re getting into.
There is a reason people say your credit score is nearly as important as your GPA. Your future house, car and any loans you may need depend on it.1- A credit card can be two things, depending on how you use it:
A hindrance or a convenience. If you carry a balance, your card is nothing but a high interest loan. If you make only the minimum payment (usually 2 percent to 3 percent of the balance) each month, you’ll be paying off the debt for years and will pay a huge amount of interest.
On the other hand, if you pay off the balance each month, a credit card becomes a very convenient way to purchase items and services without carrying around a lot of cash. Use your credit card as a cash substitute, not as a high interest loan.2- You can potentially save over $1,000 each year in lower credit card interest charges
by paying off your entire bill each month or by using a check, cash or debit card for purchases.
If you are unable to pay off a large balance, pay as much as you can and switch to a credit card with a low annual percentage rate (APR). You can obtain listings of low-rate credit cards through www.bankrate.com (click on credit cards), which provides information at no charge to consumers.
You can reduce credit card fees, which may add up to well over $100 a year, by getting rid of all but one or two cards, and by avoiding annual fees, late payments and over-the-credit-limit fees.3- The second you make your first charge with your new card, your credit scoring history begins.
Your credit score is a system creditors use to help determine whether to give you credit for that house or car loan, or whether to allow you to open up a bank account.
Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts, is collected from your credit application and your credit report.
Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles, and then make a decision on whether or not you deserve a loan or an account.