How to Shed the “No Credit” Label

A Smart Guide to Your Very First Student Credit Card.

If you’re a college or university student, chances are you were greeted by a credit card company on your first day of school, before you met your residence advisor. However before you decide that you will never get a personal credit card, you should know that college-aged students with zero or little credit history were unable to rent apartments, get car loans, personal lines of credit or even rent a hotel online, without financial backing from mom and dad.

Signing up for your first credit card is important. It will be the start of your credit history. However like your school records, you want to keep your credit history clean and by the book.

A student can easily ruin their credit history in a few short months. Your parents have likely warned you already about getting a credit card and wracking up huge debts, but their threats of disowning you might not be enough. We’re here to tell you the facts and give you the true statistics. For example, in 2006 the average credit card debts for college students after freshman year was $3,000, and that was on top of existing student loans!

If this is your first time away from home, don’t view a credit card as an extension of mom and dad’s wallet. If you don’t pay back what you owe a credit card company, you will be charged interest If you max out your credit card balance and are unable to pay it off, and you will ruin your chances of getting a loan for a new car, a mortgage and potentially a student loan for years to come.

Why is building a great credit history of the utmost importance?

You can think of your credit as your personal financial history. It follows you around everywhere. If you have a good credit history, it will be your key to getting a loan for a new car, a personal line of credit if you want to start your own business after college, or your first mortgage. However if your credit report is bad, you will have these doors slammed in your face! Your credit history basically tells the story of what level of responsibility you can handle. If you have been diligent in paying off your credit cards on time at the end of every month, credit card companies will dub you a client with good credit, which basically means you can handle the responsibility of having a credit card because you pay your those who front you the money (creditors) back on time or with interest. Building a great credit report will basically tell all potential creditors that you are good for it. This will give them the peace of mind they need when you approach the bank for a mortgage or personal loan in the future.

If you are unsure about the benefits of a good credit history, let us lay it out for you in a clear and concise manner:

Think about your credit future
You may not be thinking of applying for a mortgage when you’re in college, but think past this weekend’s keg party and into your future. At some point you will want to buy a home. When that time comes you may have a partner or spouse that you want to purchase a home with. In order to get approved for a mortgage a broker will examine your credit history to see if you are a “high risk”, which means you’ve ill managed your credit cards in the past and will likely default on the payments, or if you are “low risk”, which means you will pay the mortgage payments. You want to be deemed a “low risk” client, because the alternative is the shame and disappointment when you are denied a mortgage because of your poor credit rating.

Don’t be an interest rate victim
It’s hard to play the victim when you’ve brought it on yourself. If you are a person who consistently carries a large balance on their credit card from month to month you will likely be deemed a “high risk” with credit, and the credit card company will raise your interest rates. You know how important your reputation was in high school. I know you came to college hoping to forget about being popular, but you still have to take care of your financial reputation. This is your credit history, in other words it included every sordid detail about how you handle a credit card:

• Your charging behaviors – Do you make big or small purchases with your card?
• Your responsibility – Do you pay off your balance each month or carry a large debt?
• Your willpower – Do you frequently go over the limit on your credit card or do you have control of your spending?

Just like in high school, your credit card company knows everything about you, and you will be stereotyped as either a low credit risk or a high credit risk because of this. And believe this, no credit card company wants to associate with a high credit risk – even if you do wear the trendiest designer labels and drive the sexiest car. You can bet the stigma of being a high credit risk will follow you around for many years. The same goes for those with a good credit history.

That’s good news for college students who are responsible spenders, who pay off their credit cards at the end of each month, and who know how to budget. If you have good credit you will graduate at the top of your financial responsibility class.

A good credit history will earn you credit honors in the following:

• It will make renting an apartment easier, as many landlords ask to see credit history.
• If you are deemed a low credit risk, you will have an easier time getting a personal loan, business loan, car loan or mortgage.
• When it’s time to apply for a mortgage, you will get better interest rates and more flexibility payment options.
• Employers are beginning to ask potential employees to view their credit history. A good credit history may be the key to getting your dream job. It’s an essential component to becoming an accountant or purchaser for a large company. Plus, would you trust your company with someone who couldn’t even handle their personal finance?

Here are a few other things you should know about credit companies and the credit cards they offer:

• Don’t fall for the “don’t pay now, pay later” message that credit companies try to sell you. Pay your credit card bill off before the deadline to avoid hefty interest.
• Credit card protection plans are a scam. If your credit card is stolen and $2,000 is charged to it, you’re still only financially obligated to pay a $50 fraud fee.
• You have the power to call your credit card company to change the due date. If the middle of the month is more doable for you because that’s when you get paid, then call and ask for it to be changed.
• Don’t be shy to call the credit card company to request that your credit limit be reduced. No one knows better than you what you can handle and what you can’t.