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Building Credit: A Little Goes a Long Way

credit cards
AndrewLozovyi on Deposit Photos

I’ve never had a credit card. This is mostly because I don’t trust myself with the freedom to spend $400 at American Apparel with one swipe, regardless of what’s in my bank account.

The grad student and financial journalist in me knows that this is not a wise move. But, there’s a persuasive mini-me on my left shoulder enjoying the summer sun in a denim skirt and crop top, and I have to admit she looks pretty good.

For years I’ve told myself it’s better to avoid long-term debt by never racking up short-term debt, but this year it’s time to let my hair down, slip on some shades and apply for a credit card. Here are a few simple credit card tips so you don’t screw yourself over when you really need that good credit score.

Take the Plunge

Now that I am (sort of) becoming an adult, I’ve encountered more and more reasons to have a credit card.

For example, I rent a car to drive from New York to Tennessee for every holiday (I have a dog that’s too big to fly with me – so it’s a sacrifice in the name of puppy love). I learned the hard way that some car rental companies require a credit check before they’ll rent to you and may charge a higher rate for payment made with a debit card. Moreover, traveling in general is much easier with a credit card. It eliminates the risk of being stuck in a foreign place without any money if you accidentally spend more than you meant to.

A little further down the road, buying a car and signing a lease without your parents as a guarantor require a credit score. Without one, you will have to rely on mom and dad to help out. As the old saying goes, sometimes having no credit is worse than having bad credit.

However, if you do have bad credit, it’s incredibly hard to back track to a good credit score, which is why it’s crucial to manage your card carefully from the get-go.

Don’t Go Through a Credit Card Company 

If you see an ad for a credit card online or get a flyer in the mail touting some great promotion, ignore it.

Those cards usually have much higher interest rates, and dealing with customer service through a large credit card company is much harder than going to the bank you’re used to working with. Even if you don’t have a credit score, your bank can see your spending and income history, and are more likely to approve you for the card that’s best for you.

A good rule of thumb is to never sign up for a card without sitting down with a real person from your bank. They will walk you through the process, help you choose the best card and sort out a few logistical things that will make your life a whole lot easier. You can discuss a low spending limit, which is a good safety net for your first card, and they will also set up automatic payment from your checking account each month. This is extremely important to make sure you pay off your balance immediately so you don’t have to pay interest. Which brings me to my next point…

Never Pay Interest on Your Balance

Think of your card as a tool for short-term debt, as opposed to long-term debt like a mortgage payment. You should only float on the balance for a month before paying it off.

If you don’t pay off your card by the due date on your bill, not only does it hurt your credit score, but you’ll also have to pay interest on it. Paying interest on every dollar you spent over the last month is like flushing an extra 13-15 percent of your paycheck down the toilet.

Pay your balance on time every month so you aren’t throwing away money that you can spend on other things.

Use Your Card Sparingly

When you get your first card, use it for one or two regular expenses, like rent and gas, and nothing else.

That way you’ll know exactly how much you spend every month, so the bill doesn’t get out of control. Like I mentioned before, this is a good way to ensure you can pay your balance on time, with no interest, and quickly build a good credit score.

While I still think it’s a good idea to wait as long as you can before relying on a debt instrument like a credit card, I wish I’d taken some steps to build credit earlier.

Try it out this summer if you have a steady income lined up. Just remember to use it sparingly (maybe just for gas) so you can build credit, and consider putting it in hibernation when you go back to school – preferably before you do any back-to-school shopping.

Do you have a credit card? How do you put a cap on your spending? Share your ideas in the comments below.



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