Student Credit Card and Credit Education Blog

After reviewing the definition of a credit score, you might be wondering how you can improve yours. Here are a series of tips, courtesy of Yahoo! Finance, that can assist you with boosting your current rating:

1. How am I doing?
If you haven’t checked recently, you should certainly find out what yours is. As mentioned before, it’ll allow you to see how you’ll fare when applying for a car loan or credit card. In addition, you’ll want to check out your credit report. This way you can see if there are any credit cards or loans that are on your record but you know you didn’t apply for. You can then contact a credit bureau to appeal the illicit “charge”.

2. Pay your bills on time
Instead of waiting until you’ve got a huge backlog (and potentially incur late fees), make sure you pay them before the due date. How does this benefit you? Creditors are much more likely to choose someone more reliable in paying their bill than someone who isn’t. So, pay ‘em when you get ‘em!

3. Eliminate balances
The more debt you have, the less credit you’ll be permitted. And the lower your credit score will be. So, paying off this debt will not only get you out of high, interest-laden bills, but will also up your score.

4. Stick with older cards
Establishing a credit history (and improving your score) is easiest when you have a card for a longer period of time. FICO prefers this and is highly recommended over switching cards every year. Granted, you may have the option to transfer balances from 0% interest card to 0% interest card in order to stave off increases in the total amount owed, but applying for new forms of credit will get more difficult.

5. Only apply when necessary
Yes, getting 10% off your first purchase with a local retailer’s credit card is a nice perk, but having too many of these (most of which you won’t use very much) are not ideal for your credit score. Similar to the previous point, stick with cards that you’ve had for awhile and only apply if it’s a card you plan on using for a longer period of time - not something you want just because you receive a great benefit just for signing up.

A low credit score is not the end of the world. But, these tips can keep your score in check and allow you to slowly improve. When buying a house, car, or anything else you might finance a higher credit score (and a subsequent lower interest rate) will certainly save you money over the long haul.

If you have an account with a local or national bank, most likely they’ll offer you an ATM card with a Visa or Mastercard logo. These cards (called “debit cards”) can be used at any store that accepts the Visa/Mastercard as well as your local cash machine. So, how does it differ from a regular credit card?

Say you buy the new Kelly Clarkson CD for $14.99 using your debit card. Swipe, sign, and bag it. Since the debit card is connected directly to your bank account, the $14.99 is automatically deducted out of your account. No bills in the mail from Chase or Citibank.
Using a credit card for this purchase, such as these cards geared towards students, would add Ms. Clarkson’s vocal stylings’ $14.99 to your current month’s bill, which you pay off when it comes in the mail.

What are the benefits of using each one?

The debit cards are certainly more convenient. The account is tied to your bank account and there is no bill to pay (or accrue interest on). It also doubles as your ATM card, which is a nice plus. However, there are a few reasons why they aren’t as powerful as credit cards (and why I don’t have one). Let’s say your wallet is stolen. Mr. Thief decides to rack up a series of charges on your debit card. Since he/she can most likely fake your signature, AND the amount is yanked from your bank account, it is very tough to get that money back. I’ve seen ads that say there is no risk with debit cards, but I find it tough to believe. At least with a credit card, you see an itemized bill before you actually pay it. Find an incorrect charge? Call up your credit card issuer and tell them!

Additionally, since the credit card companies are hoping and praying that you rack up thousands of dollars of interest (a.k.a. profit) they offer many more incentives to use their card. You can earn points, frequent flyer miles, and all the other stuff I spoke about. These are some very nice perks. Finally, you have the opportunity to build up your credit score, which isn’t effected when using your debit card.

At the end of the day, it’s up to you which one you choose. In my opinion, though, if you don’t mind carrying an extra card with you and can pay off the balance each month, the perks and niceties of the credit card outweighs a bank’s debit card by quite a bit.

Yahoo! Finance had a great article with reasons why you should have a credit card. Some are obvious and I’ve mentioned before, but there are a few that I haven’t brought up and are excellent and not quite as obvious.

1. Improve (establish) your credit history and score

Definitely - I covered this.

2. Internet Purchases

It’s tough to buy online without a credit card. There are options such as Paypal and Google Checkout, but you generally need a credit card as a “backup funding source” for these payment options. So, if you want to be a regular at Amazon, get some plastic.

3. Emergency Money

Sure, your high interest rate may hurt in the long run, but this is an EMERGENCY and you need the money NOW. If this is your situation, don’t be afraid to charge away.

4. Rewards

Another one I discussed - something to look for.

5. History of Purchases

This is a great benefit. In order to determine where your last few paychecks went, you can use your older statements to help figure this out. These statements can also help you budget for the future.

6. No Fear of Loss or Theft

Another good one. If your wallet is stolen and cash is removed, you have no recourse. It’s sad, but true. However, if someone nabs your credit card, you simply call up the company who sends you the bill, and let them know what happened. Even if the thief bought a year’s worth of suits at Barneys, you usually won’t be on the hook for anything more than $50.

7. Interest-Free Money

Yep, we’ve discussed.

8. Merchant Protection

This works similarly to if your card is stolen. Let’s say you buy a laptop from an online retailer. You wait and wait and wait. You never receive your laptop or even any communication from the retailer. In fact, when you contact the company they appear to be out of business. The protection provided by credit cards will guard you from illicit merchants.

9. Insurance on Purchases

This is a nice bonus for goods and services, if your card supports this feature. If an item you purchased using the card breaks or is defective, outside of the manufacturer’s warranty, your card may replace it for you. Just be sure to check your card’s list of benefits to make sure the insurance is applicable.

10. Convenience When Traveling

There are two reasons why this is a good reason to have a credit card:

1) You don’t need to carry foreign currency (or worry about getting rid of it when your trip is over!)

2) The exchange rate is usually better when you use a credit card, because the card’s bank processes a significant amount of foreign transactions so the rate is optimal.

JetBlue has done a marvelous job of promoting their airline through their perks of leather seating, more leg room, and DirecTV for every seat. Do other airlines supply these benefits? Maybe, but I wouldn’t know because they aren’t nearly as well advertised. Their business has increased tremendously and really stands out in the airline marketplace.

Credit card companies work similarly. As a primary way to acquire new customers, there are a wide variety of credit card options to choose from. Different names, colors, and benefits all make the decision very difficult.

One area to look closely at is the perks you may get with the card. This can include frequent flyer miles, reward points that can be used for online purchases, or simple cash back. Here are a few recommended cards and the offers they provide:

These three cards are excellent options that provide you with additional financial reasons for using your credit card. Just be sure to pay off your balance each month, so that the high interest rate doesn’t ruin the pleasure of any bonus rewards you may earn!

When researching credit cards, particularly those cards specific to students, you will certainly come across teaser interest rates that offer you “0% APR until 2008″ or something similar. These are created to get as many new customers as possible with the hopes that they will forget the date their ultra-low interest rate expires, and accumulate large balances that’ll become even larger with the newly-induced high rates. This works exactly the same as the “Try AOL for 30 days free!” They hope and pray that you’ll forget when the 30 days end.

However, with the low rates, particular those that you can transfer previous balances from, it can actually work in your favor and save you hundreds of dollars. I have a close friend who had a balance of over $7,000 on a card that was hitting her with an APR of about 10%. She created this balance because of attending graduate school and not having a significant source of income. She was just beginning her career (and paying off her credit card) when she received an offer to switch to another card and not pay any interest until January 2008. This will allow her to pay the balance off much quicker, and hopefully she doesn’t have a balance when the 20%+ interest rate comes knocking.

Another trick with these types of offers, provided you don’t have a balance, is to max out the card and put this money in a Certificate of Deposit (CD) or high-interest savings account. Right before the 0% interest rate ends, pull the cash out, pay off your bill, and enjoy the interest you’ve earned on the account. Free money!

So, these types of cards can provide users with many benefits. But, just like your gallon of milk, watch the expiration date so there’s no “spoilage” of your funds.