Avoid Too Much Credit Card Debt – Build Good Credit History

Source: Collegiate Times

Interest rates are something often looked forward to in the market. Will the Fed raise, lower or pause rates? Currently, the federal funds rate is at an astonishing low between 0 percent and 0.25 percent. What does this mean, exactly?

Banks are required to keep a specific amount of cash in reserve at their branches. The federal funds rate is the rate banks effectively charge one another to borrow money to keep these reserves at the minimum level required.

Low interest rates make it easier for banks to borrow money and, in turn, lend to us as consumers.

What do low interest rates mean for us in the real world? The lower the interest rates the easier it is to get loans from the bank at a cheaper rate. Mortgage rates and credit card rates are tied to these interest rates in terms of borrowing. Of course, the rate you get is also tied to how risky you may be in terms of credit history. So, how can we build up a high credit score to get the best rates possible while still in college?

A lot of us have received numerous applications in the mail to apply for all kinds of credit cards. In reality, we need only one major credit card. Having our own credit card gives us a sense of responsibility and maturity. This sense of responsibility and maturity will only become reality when we build up the discipline to pay off our debt every month. One card is easy to keep up with and reduces the idea that we can spend however much we want.

As long as we pay off our debt every month, our credit score will rise. Since we are college students, let us suppose that we are tight on cash one month and cannot pay off the whole bill. This is when low interest rates come in. When banks are lending money out at a lower interest rate to credit card companies, these low rates are passed on to us.

If it is a necessity to pay off only the minimum, now is the time to do it while rates are low. Keep in mind that the best credit scores are reserved for those who can pay off their debt every month.

If you had a $5,000 balance with an APR of 9 percent and only paid $125 off each month, it would take you 4 years to rid yourself of that balance while paying an additional $1,000 in interest.

The real approach to obtain a higher credit score is to carry secondary cards. I am not talking about another Visa or MasterCard, but obtaining a specific department store card or gas card. Credit bureaus like people who are able to effectively manage their credit. Having a few cards and paying them off every month builds up a credit history.

Find a store in Christiansburg that you have back home, such as J.C. Penny or Sears. Get a card and buy at least one thing every month. Just make sure you will be able to pay it off at the end of each month. Usually you can get an extra discount just for using that store’s card. The final card you should get is a gas card. Let’s be real for a minute.

We all need gas all the time. Marathon, for example, has several credit card options that allow customers to receive a discount on gas and even on store purchases. Credit cards are not just something to use when you do not have any cash. Credit cards can be used to receive discounts and build up a credit history and credit score.

Low interest rates make this a favorable time to take advantage of these opportunities. You do not have to use these cards to buy something every month. Put a gym membership or cell phone bill on the card.

You have to pay these each month anyway. Why not just go ahead and help yourself out for the future by using credit. When we graduate, our credit history will be looked at by landlords, banks, and even some employers.

As we graduate and move out into the real world, we will be looking for apartments, houses, and maybe even a new car. Low interest rates are not the only factor working toward low mortgage payments and cheaper cars. The housing crisis, coupled with low rates, has put mortgages below 5 percent.

For those looking to get married after graduation, now is the perfect time to become a first-time house buyer. Even some stimulus initiatives give first timers a tax credit. Are you ready to upgrade to a new car with air conditioning and windows that actually work? Cars are cheaper now more than ever.

Most come with a very attractive APR financing resulting in smaller monthly bills and affordable cars. Building up your credit history while still in college allows you to graduate with a high credit score. The higher your score is, the lower the rates and monthly bills will be.

With interest rates at an all time low, I cannot think of a better time to take advantage and start your future on the right foot – financially, at least.

[Ed. Avoid Credit Card Debt as much as possible - if there is one BIG rule this is it.]