Developing Smart Spending Habits by Credit Virgin
Before we talk about spending habits lets first recap what we have learned in the previous videos. First, we learned why it’s extremely important to build a good credit score. Without a good credit score it will be harder to get a job, harder to rent an apartment, more expensive to buy a car, a house, and it could even make your insurance more expensive.
Next we learned how your credit score is calculated 35% is payment history, 30% is credit utilization, 15% is the length of your credit history, 10% is new credit, and 10% is types of credit. By looking at these percentages we learned that the most important thing to do is pay your credit card bill on time because this is the most important aspect of your credit score. We also learned it’s important to start building credit right away because length of credit history is a major factor in your credit score.
Next we looked at myths about building credit and realized that the only way to build credit was through either a revolving line of credit or an installment loans, and since most student in college aren’t buying houses and cars, the best way to build credit in college is by getting a student credit card and using it to make small purchases on a regular basis. Just by knowing these things you are on your way to becoming a credit building expert but before we help you find the perfect credit card, let’s talk briefly about good spending habits.
When it comes to using a credit card there are three rules you need to follow! First, never charge more than 50% of your credit line. We have already talked about this in a previous video, but we’ll do a quick recap just because it’s so important. Your credit line is the amount of money you are allowed to spend on your credit card. You never want to owe more than 50% of the credit line because once you owe over 50% it starts to hurt your credit score.
Second, try not to carry a balance. Really, you should never carry a balance, but we know that sometimes college students don’t really have a choice, but as long as you pay off your credit card bill in full each month you never have to worry about being charged interest. The amount you spend will be the amount you owe. However, if you spend too much money and you can’t fully pay off your credit card bill, the credit card company will charge you interest on top of what you already owe them. Interest is the extra money the credit card company charges you for keeping their money longer than your suppose to. Since the interest rates on student credit cards are really high, you want to do everything you can to avoid paying interest.
Third, always pay your bills on time. It’s extremely important to pay your bills on time for two main reasons. First as we learned in an earlier video, not paying your bills on time will dramatically lower your credit score. Second, if you don’t pay your bills on time the credit card company will charge you a late fee, and late fees can be really expensive! These are three simple rules will help you to avoid the pitfalls that most college students encounter when they get their first credit card. This brings us to the end of our tutorials. We now feel that you enough knowledge to take action and start building good credit. If you feel ready, we can help you find the perfect credit card to help you get started. Just click the button over there to the right.