When I was a student, I got my first credit card. Actually, I ended up with two credit cards and one of them just because I wanted the blow up chair that came with it! At the time I had very little understanding about credit cards and if I could do it again…well, I’d still get the credit card but I’d follow these student money tips.
Credit cards can seem like free money at 18. I really wish I had a better knowledge of borrowing, using credit cards, and budgeting when I was a student. I made some huge mistakes that I’ve now paid off and refuse to make again.
These student money tips are ones that I still follow again. Here are four that will help you use credit cards responsibly and in a way to build your credit rating.
Have a Credit Card for Emergencies Only
I started out with two credit cards. Both had very small limits, but enough for emergency purchases. Unfortunately that’s not how I used them, but after clearing both credit cards off I put one aside for emergency purchases only.
Emergencies mean emergencies. The costs that are totally unexpected and you just don’t have the savings for. Of course, using savings and building an emergency savings fund is much better, but having a credit card is a back up.
Opt for the card with the lowest interest rate as your emergency spending one. This is a card that you’re likely not going to clear off right away, so you don’t want to add too much extra to it when you have the choice. Clear as much as you can each week to reduce the amount of interested added to your account.
Spend and Clear Regularly
You can use a credit card for everyday purchases. However, you need to make sure you clear your credit card regularly. We use one credit card for food purchases and the monthly trip out. We only spend what we can afford in the bank account and clear the purchases each week.
By doing this, you’re showing you are responsible with money. You make it clear that you can make a purchase and clear it almost immediately. You’re not a high risk to lenders and will be sensible in the purchases you make.
Some people will tell you to keep your credit card balance at around 30%. This shows some borrowing but not an alarming amount. However, using frequently and clearing regularly before interest is charged is an excellent way to prove your capabilities. Lenders in the future are more likely to offer you the best interest rates and bigger loans. This is great for mortgages!
Spending on credit cards can also protect you financially. Your purchases are protected by the financial industry, in case you don’t receive goods etc. This has come in use for me on one occasion when I didn’t receive some expected tickets for an event and was told my only option to go was to buy extra ones! I got the money back for the first tickets, despite repaying the money on the credit card months earlier. Now any large purchases are put on a card and cleared off just for my financial protection.
Only Spend What You Can Afford
It’s common to think that your credit card is free money. I remember using the card for some tech purchases; things that I’d been putting off because my parents wouldn’t buy them for me. Looking back they were a waste of money and I just ended up in debt for no reason.
The biggest of all my student money tips is to make sure any purchase you make is something you can afford. Just because you want something doesn’t mean you need it or should have it. The only purchases I believe don’t fall into the “afford” part are genuine emergencies. For example, we’ve used a card for a recent car repair cost that was more expensive than we originally expected (although we’re now in a position to repay that before interest is charged).
Don’t spend money on holidays just because you think you should go on one. Don’t buy a new laptop when your current one is still working. Avoid buying food and drinks on your credit card just because you can.
Be sensible with your credit cards. The history will follow you. If you’ve proven to be frivolous with your money, you will have a bad mark against you on your credit report.
Cut Up Your Extra Credit Cards
A few years ago, I got rid of one of my credit cards. I chopped it in half, never to use it again. In fact, my bank realized that I hadn’t used the card in a long time and share they wouldn’t send me an updated one unless I asked for it. I’ve gone more than five years without that card now and don’t miss it.
Extra credit cards will just tempt you to use them. The best way to avoid using them is to cut them up as soon as possible. You could also close down the accounts, which is something I did last year with a business credit card that was no longer needed. Closing dormant accounts will help your credit score.
Only have the credit cards you need. I recommend one that you can use for the regular purchases that you clear almost immediately and an emergency one.
Spend your money and use your credit cards wisely. The above student money tips are ones that I wish I’d followed when I was in university and are ones that I still follow to this day.
I would like to finish with saying please do be careful with your money. Setting up a student budget really is one of the best things you can do!
Do you have any student money tips you want to share? Feel free to share them in the comments below.