Loans and Taxes
Credit cards are difficult for many people with years of real-world financial experience to handle properly, and using cards responsibly is particularly challenging for novices. It can be dangerously easy to spend at will when you can present a piece of plastic as payment, but there always comes an unpleasant day of reckoning when your credit limit is reached and your bill arrives.
Nevertheless, a credit card is now standard equipment for most college students. Payment with cash is less popular than it once was, and almost all merchants in college towns accept credit cards. Banks devise special cards for new students, introductory "training wheels" cards issued with low credit limits, which give learners a chance to practice prudent use of credit without risking financial disaster. Even so, credit cards do not come without potential hazards.
The first rule of card use, one you must always remember, is to think of your credit card as a loan rather than a supply of previously earned extra money already sitting in your personal exchequer. If you follow that simple advice, your chances of becoming financially overextended through credit card debt will diminish significantly. You make purchases for goods and services on the promise that you will pay in cash for them later, with interest (the cost of borrowing the money from the bank) added.
At some time in your life, you will need to prove your creditworthiness so you can secure a loan, for purposes like buying a car or a house, or perhaps setting up your own business. Helping you establish good credit is one of the many services credit cards can perform for you.
Secure Payments: There's nothing worse than paying cash for a purchase, then discovering the item sold was defective or not what you were told it was. In such a case, you have no recourse and must sustain the loss yourself.
But if you are unfairly treated in a credit card sale, you may enlist your card company to fight the battle with the merchant on your behalf. With a credit card, your purchases are logged and documented by the credit card company. Each purchase is detailed on your monthly statement.
Should a problem arise, you should call your credit card company immediately and alert them to the issue. If there are grounds for disputing the purchase, your company can take up the matter with the merchant's credit card company. Most card issuers are also very prompt in informing you of any suspected fraudulent activity related to your credit card account.
Emergency Fund: Your ability to keep money in a savings account during your college years will be limited. Even if you plan ahead, you can still find yourself short of cash due to unexpected expenses. Any event that does not fall under normal planning, like car repairs, hefty utility bills, or sudden emergency travel, could deplete your savings at an inopportune moment.
But if you have a credit card at the ready, on which you have kept sufficient credit available, you can leave your savings untouched and use your card to cover the new expenditure. In an emergency, a credit card can be a very helpful financial tool.
When You Must Use A Credit Card: Some payments, like hotel and rental car reservations, cannot be made in cash. A credit card will be required, so the merchant has a guarantee. And credit cards can make other types of purchases, like online shopping, much easier. Credit cards are sometimes necessary.
Establish a Solid Credit History: A credit card can help financially responsible students establish good credit. On campus your immediate concerns will be grades, social life, and finances. But a credit card also gives you the opportunity to build a financial history, slowly and carefully.
Caution dictates that you make a few purchases here and there on credit, in order to keep your credit report updates. And of course you must make all card payments on time, preferably in the full amount you owe each month, in order to avoid excess fees and interest and to remain well within your credit limit.
Even though credit cards carry with them many positives, they also have their share of negatives, especially for young people with limited credit experience. Practicing responsible credit card use, however, can eliminate most of these problems.
Now that you know the benefits and the dangers of using a credit card, let's discuss some ways in which you can become a responsible card user.