According to an article last month on Money Talks News, 10 percent fewer students under the age of 24 had credit cards in 2012 than had them in 2010. In addition, that small percentage of students who did have credit cards used them less then they did in prior years.
All things considered, this is good news. Credit card debt is expensive and can have a profoundly negative affect on your quality of life after you graduate. However, if you want to get a good interest rates on real estate and vehicle loans in the future, you must have good credit and the only way to have good credit is to actually use it.
The Importance of Credit
Your credit rating can determine what jobs you get, which apartments you can rent, and what rates you get on loans. Having no credit means that you look riskier than someone with good credit and you could be penalized for that.
The best way to show future lenders that you know how to use credit responsibly is by establishing a good credit history through the use of credit cards and loans. Although avoiding debt is responsible since it indicates that you live within your means, your future lenders want to know that you act the same way even when you have access to credit.
A Better Solution
Instead of avoiding credit cards altogether, it is often a better idea to have one credit card that you use sparingly and purposefully. The goal here is not to create a massive debt, to have a running month-to-month balance, or even to use the credit card when you are low on cash. The goal is to make strategic purchases on the credit card and pay them off immediately in order to establish good credit.
Good credit is created by:
- Keeping your debt balances low
- Paying bills on time
- Having a variety of credit cards and loans
- Having few inquiries from new applications for credit
- Having a long credit history
Knowing that, it makes sense to get a credit card when you are young in order to create that history. However, in order to complete the plan you must:
- Make sure that you utilize the card correctly and effectively
- Pay on time
- Keep no balance
- Limit the credit you apply for
When shopping around for a credit card for the express purpose of building credit, be sure to select one that does not have an annual fee. You can also consider one with a rewards program that would benefit you, as long as it doesn’t tempt you to use the card to buy more than you can afford to pay for. Plan to use the card only for purchases you needed to make anyway, and always pay the purchases off online as soon as they show up.
With a firm plan in place, the ability to discipline yourself, and an eye on the prize of good credit, you can use credit cards as tools to help secure an affordable future rather than crunches that create a devastating financial destiny.