What exactly is credit?
Simply put, your credit is how willing people are to lend you money. When you borrowmoney using a loan or a credit card, you create a credit history, which is importantbecause it follows you for years. And it can impact whether people give you car loans,apartments or even jobs. So while your first credit card decision is a big deal, there’sgood news. Using a student credit card responsibly while in college can give you anedge on your future.
How do credit cards work?
You apply for a credit card with a bank or other financial institution. If you’re over 18,you can apply online or by mail; if you’re over 21, you can also apply by phone. If you’reapproved, the bank issues you an account and sends you a card. When you shop withthe card, you’re actually accessing the bank’s money, up to your credit limit. You’ll geta monthly statement that says what you spent and how to pay it back. And each month,you can pay back all the money you borrowed or just a part. Always pay on time, beforeyour due date. And remember, if you only pay back some of your bill, it has to be at leastthe minimum payment on your statement. Paying back just a part also means you’ll becharged interest.
What is credit card interest?
If you don’t pay your account balance in full by your due date each month, you’ll becharged interest on the rest of the money you owe. Your interest is calculated usingthe Annual Percentage Rate (APR) you agreed to when you applied. Many cards offera lower introductory rate for several months before the regular rate starts. Look at allthe rates on a card before you apply. Building a strong credit history can help you getlower rates.
How else does your credit history affect your future?
Having a good credit history can open doors.Beyond helping you get lower rates for credit cardsand loans, your credit history can make a bigdifference when you apply for an apartment, a carloan or a job. That’s because the people who makedecisions about you rely on your credit history tosee if you’re a safe bet. And they usually get thatinformation from one or more credit bureaus.
What are credit reports and credit scores?
The people who lend you money report your account history to credit bureaus.Credit bureaus gather information on your balances, limits, payment history andmore to create your credit report, which shows how responsible you’ve been with yourcredit. The more responsible you are with your credit, the higher your credit score.Credit scores range from the low 300s to the mid 800s, and lenders look at scoresabove 620 as average, above 680 as good and above 720 as excellent.
How do you use credit responsibly to get a higher credit score?
Of course, when you’re just starting out, you probably have little or no credit history.That’s because there’s nothing to report—good or bad. That’s why it’s important toshow you can manage credit while still in college. And student credit cards can be agood way to begin. The key is small purchases and making your monthly payments ontime. That way you’ll start building a credit history that can work in your favor when youneed it. See 10 things to know about credit for more information.
