How to make your bank
Personal finance basics for college students
ANNA VALAIK / ARTS & CULTURE EDITOR / THE USD VISTA
There’s no denying that college students may not be the smartest with their money, or at least have not been budgeting it correctly. From one too many overpriced coffees or excursions to the mall, many students spend too much on frivolous things.
However, college is also a time where most people learn how to be responsible with money, set up bank accounts, and open up credit cards. During these learning experiences, people might fail to understand the importance of personal finance.
So, if you’re dying to learn more or just want to stop staring at your bank statements in utter confusion, listen up.
Dr. Priya Garg, Ph.D., from USD’s finance department, offered professional advice about managing one’s own personal finance.
Keep reading to learn everything you need to know about credit cards and the importance of one’s credit score from Dr. Garg.
What is a credit card?
A credit card allows you to borrow funds from a bank for your own spending. You owe money and will have to pay back what you borrowed each month. When paying each month, there is a minimum balance that you must pay if you don’t want to get charged interest. If you don’t pay before the due date, you can expect to have to pay late fees, have interest compiling on your bill, and possibly do damage to your credit score. Late fees and interest charges slowly add up over time, and there’s no reason to pay them if you don’t have to.
A credit card differs from a debit card because you use your own money when paying with a debit card. A credit card’s funds are not your own personal funds; they are the bank’s funds, which they are lending to you.
Although this may sound daunting, there are some advantages to opening a credit card. You will build your credit score and possibly get cashback to make other purchases. Your credit score is vital because it can bring you good opportunities in the future, like taking out loans and letting banks know you are a trustworthy spender.
How to be smart with a credit card
Your credit score measures your creditworthiness. Essentially, it’s a numerical expression of how good of a borrower you are. Your credit score is based on your credit history, which notes your repayment history, levels of debt, and the number of open accounts. Your credit score will become extremely important as you get older and want to take out a loan; it will determine what loans you can get and the interest rates you will pay. Opening up a credit card and using it responsibly will help increase your credit score.
Check out free websites online like Chase and Credit Karma to see where your score stands.
Learn when your due date is for paying your credit card
There’s nothing worse than forgetting about paying your monthly bank statement. The days get away from you, and this one task can easily slip your mind. One way to avoid this awful feeling is to put calendar reminders 2-3 days before the actual due date. This way, you will pay it off on time and avoid all those crazy late fees or interest charges. Autopay is also another option for those who tend to be especially forgetful. However, just make sure to link this payment option to a card with enough money on it. You don’t want to link it to a card that could have insufficient funds.
Keep your total credit card balance 5-7% off your credit card limits
Credit cards come with a spending limit, which you cannot exceed. At the end of the month, you don’t necessarily want to have spent 99% of all your spending money. Instead, aim to spend about 5-7% of your limit to secure you will be able to pay it off. Also, it’s better to minimize your spending because these statements are sent to those who determine your credit score. If you constantly reach your limit every month, this may indicate that you are a big spender and struggle to budget your money.
Pay off your credit card in smaller increments
To avoid having a giant bill to pay off each month, try paying throughout the month. This way, you know you will always have the funds to pay your bills. Also, it takes the weight and stress off that monthly due date.
Always pay the full credit card balance
There’s no need to wait it out and constantly only pay your minimum balance. You will incur interest, and the bill will just keep increasing as time goes on. Only paying $30 of the $200 spent in November will mean you have that much more to pay on December’s bill. Although it’s easy to pay the minimum and just try to forget about the rest, this isn’t recommended. This is not a good habit to fall into because it signals to the credit card company that you may not be responsible with your money.
Understand your minimum payment
Paying less than the minimum is considered a missed payment, which is not good. Also, budgeting to stay at your minimum amount will only garner you more interest. Instead, think of your minimum payment as guidance rather than the absolute rule.
Why understanding your credit card is important
Credit cards have lifelong implications. Although they may seem like a free-pass to spend money, they can also lead to people spending money they don’t have. Because credit scores don’t affect many college students in their daily lives, they can be forgotten about. However, working on your credit score right now will pay off in the end. It’s hard to bring up a credit score, but it’s easy to destroy it.
So, learn the basics of credit, apply these small tips to your financial life, and you will already be ten steps ahead of your peers.
If you want to learn more about personal finance, there will be a workshop on Nov. 11 surrounding the psychology behind how we view money. The Money & Me workshop will be held by Dr. Garg from 12:30 – 2 p.m. at Mother Rosalie Hill Hall room 131. Food is provided, and it’s Passport/Compass approved. If this isn’t enough on finance, register for Dr. Roccato’s Financial Literacy class (FINA-294) in the spring. It’s geared towards non-Business majors, so it’s perfect for those looking to get to know their money better.