How Not to Ruin Your Credit Score in Your First Year of College

The first year of college is a lot of adulthood at once, so it’s easy to make mistakes right away, especially when it comes to money. Tens of thousands of dollars in credit can easily be wasted, credit ratings can be tainted, and accumulated debt can last for decades. With that in mind, here are some ways to keep your reputation safe even before you choose your specialty.

Use your credit card as a debit card

To a young person living unattended for the first time, credit cards may seem like free money or an issue that you should worry about in the future. But to avoid the temptation to overspend, treat your credit card like a debit card and never charge anything unless you can pay right away. Credit card interest rates are absurdly high, and missing minimum payments can lower your credit score for years to come (and it’s your credit rating that determines whether you can buy a car or house, or even rent an apartment). Credit Card Insider has a good example of what a seemingly minor error in reasoning can cost you:

If you, for example, withdraw $ 3,000 from a credit card at an annual rate of 17% and only pay the minimum each month, it will take you 10 years to pay off your original balance, by which time you will have paid over $ 2,200. in the interest. Not cool.

The mistake I made in college was that I assumed that I would have to pay extra expenses for the rest of my life in the first semester. In fact, once your debt starts to rise with interest, it can be very difficult to pay off, especially in your teens and early 20s when your returns are at their lowest. For more information on how to use your credit card, read this .

Do not use all your student loans unless you absolutely have to.

Although the interest on your student loans is low compared to other types of loans, this does not mean that you have to use all the money that banks are willing to provide you. Consider that the average student borrower takes 20 years to pay off his student debt, and during that time he will only pay $ 26,000 in interest. This means that you will burden yourself with monthly payments of hundreds of dollars for up to thirty years, with a significant portion of these payments going to interest. After you graduate from college, these monthly payments will determine whether you can afford to live without roommates or buy a used car.

To understand how this works, play with the student loan repayment calculator and see for yourself. For example, the difference between $ 45,000 and $ 40,000 in loans over a 20-year repayment period means that you will be returning $ 322 instead of $ 287 each month – all 240 of that.

Make a budget and stick to it, especially if you live on these loans.

Research shows that students are already spending more in college than is strictly necessary. The problem is compounded by the fact that most adolescents have no experience with money and tend to make impulsive decisions with it. This is why it is so important to develop a habit of budgeting ahead of time when it matters most.

To determine how much of your student loan you really need , use the Student Budget Calculator to create your monthly budget for the year. Some costs, such as tuition and textbooks, will be fixed, but you will have more flexibility in planning and adjusting living and discretionary expenses. This may include some short-term sacrifice – for example, living with your parents rather than an off-campus apartment. But these sacrifices will make you more financially independent after graduation. Either way, the goal is to find a budget that’s comfortable enough that doesn’t lead you too deeply into debt.

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