Back to School Consumer Tips

How to Establish – Not Destroy – Your Credit Rating

The college years are full of choices. What profession to prepare for, what classes to take, where to live and what activities to get involved in are all decisions that can steer your course into adulthood. Another major choice with which you will most likely be presented is whether to apply for credit. Unfortunately, many make this major decision with no more thought than what size "free" T-shirt to ask for.

Credit card companies are a visible presence on campuses these days. You'll see their displays where students gather, staffed by representatives offering "free" items when you sign up for a credit card. You may think, "What's the harm?" but that "free" t-shirt may cost you more than you ever bargained for.

Every time you sign up for a credit card, the information is electronically posted to credit bureaus. From that first credit card application, you are establishing a credit history that will follow you through your entire life. Getting too deep into debt can affect your ability to establish other forms of credit in the future, such as loans for a new house or car.

Establishing credit is an important part of adulthood, but the trick is to make informed decisions about what credit cards you apply for, and wise choices about your purchases. Here are some simple steps from the California Department of Consumer Affairs that can pave the road to healthy credit:

Limit the number of credit cards. Usually one or two major credit cards are enough to get started. Some day, creditors will look at the number of credit cards you hold when determining future credit. Even if you have a zero balance on your credit cards, having too much credit available could keep you from getting a car loan or mortgage in the future.

Read the fine print and make sure you get the best deal. Shop around for credit cards with low annual rates and minimal monthly fees. Often times your student or alumni association, automobile club or other organization will offer more favorable credit terms.

Congratulations. You have a credit card – now what? Protecting your credit begins the moment a credit card arrives in the mail. You should:

  • Immediately sign the back of your card so no one else will.
  • Call the card issuer to activate your card. This is a common procedure to ensure the credit card got into the right hands;
  • Take the documents sent with the credit card and put them in a safe place. They contain telephone numbers and account information you may need if your credit card is lost or stolen.
  • Control your spending. Save your credit card for needed items, such as books or emergency car repair. Sometimes, having a credit card in your wallet or purse makes it seem too easy to buy something you "just got to have." Uncontrolled spending can lead to debt that is out of control. Remember: unpaid bills can damage your credit rating and make it difficult to get credit when you need it.
  • Consider using a debit card for everyday purchases. Knowing the money will come right out of your checking account helps to put the brakes on spending what you can't afford.
  • Set your "credit limit." When you initially receive a credit card, it will include a credit limit set by the credit card company. However, you need to set your own limits based on your ability to pay the bills. A credit card company may set your limit at $1,000 but if you can only afford $150 per month, then that should be your credit card spending limit.
  • Pay it off! The best way to maintain good credit is to control your spending. Make it your goal to pay off credit card balances at the end of each month, if possible. Remember, every unpaid balance is a loan with a very high interest rate. If you are only making the minimum payment, it doesn't take long for a small balance to grow into unmanageable debt.
  • Know what you owe. Ignoring your debt is a sure-fire way to get into serious credit trouble. Even one missed payment can result in the credit card company raising your interest rate, sometimes doubling or tripling your current rate. Going over your credit limit can also impact your interest rate, as well as costing you additional charges.
  • Control your card. Don't lend your credit card out to anyone – even a friend. Your credit privilege and history are too precious to risk.
  • Check the bill. Hang on to those sales slips you collect throughout the month and make sure they match the purchases that appear on your bill. If you think the bill contains charges you did not make, contact the credit card company immediately. For details on the process required to dispute billing errors, visit the "Consumer Protection," "Credit" information at the Federal Trade Commission's Web site:

If you find yourself with bills that you cannot pay, remember, it's never too late to get back on track. Start by talking to a non-profit credit counseling service. Deal only with reputable credit counseling services. While some credit services organizations provide legitimate services, others have been known to accept payment and not provide any service; provide inaccurate or misleading advice; and engage in questionable "credit repair" practices. To find a credit counselor go to the National Foundation for Credit Counseling's help web site,

Also, talk to your creditors – you may be surprised to find that they are willing to work with you to create a plan for paying off those debts.

Credit cards are useful for flexibility, emergencies and deferring payment on essential items. But if you charge your way through school you could end up with a double whammy – a school loan and huge credit card bills.

For additional information and helpful credit tips, check out some of these valuable resources on the Web:

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