One Word for Graduates:Plastics

Hey college graduates, I’ve got one word for you.

The government now says that if you are over 21 you can drink and carry a credit card. And now that you see these responsibilities side-by-side you can also see how they are similar. Use either privilege , or both, irresponsibly and you’ll be headed for disaster. So, just like drinking, overuse of credit cards can be destructive, but in moderation it’s fine and by some claims even good for you.

Credit cards are good because they are the fastest and simplest way to begin building a credit score. The credit score is what everyone will use to judge your level of responsibility. This isn’t limited to lenders, so don’t wait until you’re ready to buy a house to start thinking about building credit. Even from landlords and employers make peak at your credit score.

When applying for a credit card keep in mind that more is not better. You don’t need a wallet full of cards. Choose one, maybe two to start.  Be sure to select different types of cards and use them for different purposes.

To get a handle on plastic purchasing, you might ask your credit union for a low limit card. This type of card has a very low credit limit, maybe $500. You would use this card frequently for purchases and pay it off each month. This is a good way to begin to learn to use credit. The low limit ensures that you won’t over extend you finances.

You should also have a card that has a higher limit. Save this card mostly for urgent emergencies or planned large purchases. One factor of the credit score calculation is the ratio of available credit to credit used. Use this card occasionally, but stay away from your credit limit. This will help your credit score.

The two most important things to do when reviewing credit card offers are:

  1. Look at the interest rate, but don’t judge by that alone, and
  2. Read all of the fine print. This is where tricks are usually hidden. If you don’t understand something, look it up.

Since the 2009 Credit Card Reform Act, card companies are no longer allowed to market credit cards to anyone under 21 years. That might mean two things: 1) The 2010 freshman class will have to find another way to build their wardrobe since there will be significantly less free t-shirts from card companies, and 2) 2010 graduating seniors will find their mailboxes stuffed to the brim with credit card offers. To be sure you’re not being handed any sneaky offers take a proactive approach and go to your credit union. They are more likely than large banks to provide solid credit cards with low rates and few fees. Plus, they usually give you great tips on how to get the most out of your card and build a healthy credit score.

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