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A Student's First Experience With Credit

It's easy for students to get caught in the credit card trap. Understanding credit will help you become a good credit consumer and set the stage for your future credit health.

College is often the first experience you have with credit. You've probably seen or heard about the incredible volume of credit card offers available to you. Do you wonder why banks and retail stores offer credit to you when you're living on a fixed income, sometimes without a regular job? Banks and retailers are looking for new business, and you're a prime candidate. Creditors know two important things about offering credit to college students:

  • You'll probably be a customer for life.

  • Your parents will often pay the balance if you fall behind.

While banks and retailers look to college students for new business, college is also the perfect time for you to begin establishing good financial health. You may want to follow the guidelines below to get started on the right foot.

Talk With Your Parents

Ask your parents to tell you about their experiences using credit. This may be difficult for them because their credit experiences, especially credit problems, are very personal. It may be helpful to tell them that their knowledge will help prepare you to be a good credit consumer.

Look Into Different Types of Credit Cards

There are bank credit cards and retail credit cards. Bank cards have the VISA, Mastercard, American Express, or Discover logos on them and are accepted by many vendors. Examples of retail credit cards are department store credit cards (such as JC Penney or Macy's) and gas cards (such as Shell or Exxon). A good way to establish credit is to make a small purchase on a retail store card each month and pay off the balance when the bill comes. This shows creditors you aren't spending beyond your means and can handle the repayment obligations. Using a bank card may get you into more debt than you can handle because you can use it almost anywhere. You might consider having a major credit card only for emergencies and don't keep the card in your wallet or you may be tempted to use it for other purchases.

Using a Credit Card Costs Money

You probably know you can afford the minimum monthly payment of $20, but are you aware that the debt can continue to grow because of the interest? The chart below shows how much you'd end up paying on a credit card balance of $1,000 with an interest rate of 18% if you only made the minimum payment each month.





Monthly Payment Amount


Total Finance Charge Paid


Total Amount Paid


Number of Months to Repay


You can see that you'd pay more than twice the balance as a result of paying the interest. Not only that, it would take you over 12 years to pay it off! Consider the total cost of using a credit card, not just the minimum payment. Paying your balance in full each month is a better way to manage this debt. If you are unable to pay the full balance, pay is much as you can over the minimum; it will greatly decrease the interest charges and thus the total amount of the debt.

Create and Maintain a Budget

Learning how to budget will serve you well, particularly when you do it before your expenses get complicated. Start by identifying total income and expenses:

  • Income, i.e., financial aid, money from parents, part-time job, etc.

  • Expenses, i.e., books, meals, clothing, entertainment, etc.

This way, you'll see exactly how much you can afford to spend with the amount of income you have. You'll have a plan for your finances, and you'll be in control.

Pay Your Bills on Time

Late payments become part of your credit record, and may make it difficult for you to get credit in the future. This is true for all bills, including rent, utilities, credit cards, and student loan payments. One strategy for paying on time is to send the payment the day you receive the bill. If your cash flow doesn't work like that, you may want to keep payment due dates listed on a calendar. Be sure to give enough time for your check to go through the mail. See the State of California booklet The ABCs of Credit Card Finance: Essential Facts for Students.

College can be so many things for you. Don't let it be the start of your going into debt. For general advice to college students about money management, see the Bankrate.com article 12 Money-Management Tips for College Students. For more information on any of these topics, read the related articles in our Knowledge Center Library.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.


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