With graduation from college comes a brand new life full of responsibilities. For many people, a credit card becomes a necessity for emergency purchases and building a solid credit history. But credit cards can also plunge people into regrettable levels of personal debt if not managed well. But if you know how to use credit cards wisely they can be enormously beneficial in building a successful future.
A good credit score is based on a reputable history of making payments in a timely and responsible manner. Many future purchases such as apartment rentals, car loans, and mortgages will rely on the credit history of an individual to gauge his or her reliability.
Even future employers can access your credit report and base decisions upon them. One survey conducted by the Society for Human Resource Management concluded that 47% of employers accessed the credit reports of their applicants. They may not see your actual credit score, but they can see missed payments, loan defaults, accounts turned over to debt collection agencies, and other such items.
It is very important to build a credit history that will help you and not be detrimental to you. Your credit history is something you should be proud of and not something you feel the need to hide. But to build a solid credit history there are some credit card rules you should know about and here they are:
Credit Card Rule #1: Know all about the credit card rates and fees
Rates and fees of a credit card will be detailed in the fine print of the terms and agreements of the card. Do not skip over this very important section. Many people have gotten into lots of trouble by not reading through the fine print.
For example, cash advances on a card can have very high interest rates that occur immediately. These high interest rates can quickly send someone into debt.
Credit Card Rule #2: You need to have a budget in place
Have a plan for the money you spend and for the money you want to save. By having a budget, you can limit your spending to what you really need and be informed as to what you can actually afford. Having a plan is a major way to prevent financial mistakes from happening.
If you use a credit card, you need to make sure you can pay for your purchases as quickly as possible. This means that you need to know what you can use your credit card for and what you cannot use it for. Budgets help you figure out how you will pay for something.
Credit Card Rule #3: Stay within your budget by keeping track of your spending
A budget is no good if you cannot stay within it. In order to stay within your budget, you will have to know when to stop spending. You need the discipline to commit to your budget no matter what.
There are many programs out there to help you manage money and track your spending. Mint.com is an excellent online program to help you in this area and is also available as an app on any smartphone.
Credit Card Rule #4: Pay your bill in full every month
This is a simple rule but few people actually do it. One of the best things you can do is to consistently pay your credit card bill every month. Many people just pay the minimum amounts, rack up interest, and end up in lots of debt. Do not fall into the trap of compound interest.
Credit Card Rule #5: Pay your bill on time
Late payments can hurt credit scores if those late payments get reported. So always make your payments on time. This goes for any of your bills and not just your credit card. There are many ways that you can remind yourself to make payments whether through email notifications, text messages, or apps. If you decide to have payments automatically taken out from a bank account, just make sure that sufficient cash is on hand to cover expenses.
Credit Card Rule #6: Don’t get several credit cards
Just start with one card and see how well you can do. It is a wise practice to start small and work your way towards more. Do not think that you need a lot of credit immediately. Learn to work with what you have. Having a lot of credit early on is very tempting and can quickly lead to financial ruin.
The Bottom Line
Remember that a messed up credit history is very hard to fix. Repairing credit can take over a year or even much longer. This is why managing your credit card is so critical. You will do well if you can stick to the credit card rules laid out here and lean towards a stringent policy when it comes to using credit cards.