Like after college can be a wondrous exciting time, but for many it means a dose of reality. It means starting to look for a job in your chosen career field. For others it is their first step in the adult world of real finances, other than student loans and credit cards. While many former college students had credit cards, many did not learn the lessons needed to manage their credit correctly. Credit is not hard understand, however the key to credit is using it wisely and understanding the basics of credit. Here are the simple lessons you should know by the time you are done with college.
The first thing that you should have a grasp of is that budgeting is the key to not only credit but all of your finances. if you do not track each and every expense you can quickly get side lined with paying back debts and loose control of your spending. There is an old adage that knowledge is power, and power for your personal finances is budgeting and keeping track of your expenses.
Getting started with budgeting is rather easy. First off you need to write down all of your given income for a month. Next what you need to do is spend two weeks writing down everything you spend money on, leaving nothing out including anything purchases on a credit card. Leave no expense out even if it is just $2.50 for a coffee. Then you add all the regular recurring bills you have every month to this list. Add these expenses up and compare them to your monthly income. The number may shock you. You then have to decide if there is anything that you can live without and figure out what to devote to a savings account for a rainy day, a financial goal or for later investing.
The next thing you need to learn is that interest can add up very quickly. With credit you will want to make more than the minimum payment every month, if not the whole balance in full every month. If you have for example $2000 in credit card debt at 19.9 percent interest rate it would then take you five years to pay it off at the minimum payment and close to $1200 dollars in interest. Obviously this is a bad deal. The above example is assuming you do not make any new purchases during this repayment period. If you miss payments you can be hit with penalty interest rates as high as 30% which cold further trap you into debt. With credit cards it is prudent to only charge what you can pay off in a month.
The last part about credit is understanding that your behavior patterns when it comes to using credit will dictate what type of credit you qualify for and at what interest rate. If you have ever been denied credit before it is usually due to one of two reasons, the first many students and recently graduated find themselves in is that of thin credit. Thin credit is where the credit reporting agencies simply do not have enough data on you to formulate a credit score. The second main reason people get denied new credit is due to mismanaging their credit. Things like late payments, debts that you skipped out on paying and too many inquiries can all quickly tank your credit score. The good news is that if you manage the credit you do have, then over time your credit score will improve. With improved credit scores come better interest rates and even better you will qualify for rewards credit cards and other perks. It is simply a matter of being responsible with your credit over time. Keep your credit balances low, pay off your balance in full each month if you are able and never miss a payment and you will be on your way to steller credit in no time.