10 Most Common Ways Students Ruin Their Credit

You’ve just gotten your first student credit card and you’re ready to rush out and spend some money on it. This is an exciting milestone in life but it’s one that you should take seriously. If you fail to properly use this first credit card, you could significantly damage your credit. This places you in a lot of debt and makes it difficult to get future loans for things like cars and apartments. Knowing what others often do wrong is a great starting point for knowing the pitfalls to avoid when it comes to debt issues.

Here are the ten most common ways that students ruin their credit. Avoid these problems at all costs!

1. Failure to budget. The single biggest reason college kids get into credit card trouble is because they spend the money they have on credit without budgeting. Liberal spending combined with a lack of a repayment plan is a recipe for financial trouble
2. Using credit cards instead of student loans. Student loans are low-interest loans that are a source of cash. This should be used first and the credit card should only be used as a back-up source of income since the interest rates are higher and the payment required sooner for credit cards as compared to student loans.
3.        
   Getting more than one credit card. Having more than one credit card makes it more difficult to keep track of payments and it makes it easier to run up excessive debt. Applying for additional cards is also bad for your credit score.
4. Taking advantage of credit card increases. Credit card companies love to set a credit card limit and then increase it when students near it. If you’ve already racked up $5000 in credit card debt and the company increases your limit to $8000, they figure you’ll run up the other $3000. Don’t.
5. Using the credit card to pay for the group. College kids often do group activities and the person with a card will pay for the group. Everyone else is supposed to pay him back with cash but they never end up paying the full amount and he ends up with a bunch of debt plus the interest to pay.
6. Co-signing for friends. College kids want to help out their friends so if they can co-sign on a credit card account for someone else, they often will. When the friend doesn’t pay the debt, the responsibility falls on the co-signer.
7. Making late payments and missing payments altogether. Rates go up, fees are applied and credit scores go down. It’s a bad situation all around.
8. Using credit cards without getting a job. Credit cards shouldn’t be used if you don’t have a source of income. Get a part-time job while in college to decrease reliance on credit cards.
9. Being disorganized with credit information. This can lead to problems ranging from missed payments to not realizing you’ve become a victim of identity theft. It’s also highly common for college kids to have this problem.
10. Assuming the debt can be dealt with later. Many college students just assume that the credit card loan is free money that can be dealt with later, after college is over and the student has entered real life. The reality is that this is your real life and you need to be responsible with your money now.

This entry was posted on Friday, June 27th, 2008 at 7:10 am and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.