Guides: Financial Literacy: Credit and Debit Cards

Understanding Credit

What should a college student know about credit?

Credit is a tool that can be incredibly helpful if managed responsibly. It can also lead to financial trouble if misused.

Here are a few things you should understand:

Your credit score is important: Your credit score determines your ability to borrow money, rent an apartment, or potentially even get a job. Building a good credit score while in college can set you up for financial success later in life.
Credit cards: Credit cards can be a convenient way to make purchases, but also come with risk. Paying off the balance in full each month helps avoid interest charges and will help you build good credit.
Credit Reports: Check your credit report on a regular basis. This will help you ensure it's accuracy and allows you to spot any errors or signs of identity theft early.
Credit limits: Understand your credit limit and do not max out your credit card. Not maxing out your credit card can positively impact your credit score. The goal should be to keep your credit utilization under 30%.
Interest rates: Know the interest rates for any credit card or loan you have. High interest rates can quickly lead to more debt if the balances are not paid off promptly.
Payment history: Making payments on time is essential for maintaining a good credit score. Missing payments will have a significant negative impact.
Credit applications: Applying for multiple lines of credit in a short amount of time may temporarily lower your credit score.
Types of credit: Having different types of credit, such as credit cards, student loans, and auto loans can possibly impact your credit score.

It is important to make informed financial decisions and set yourself up for a strong financial future.

Credit vs. Debit Cards

What is a credit card?

Credit cards are a convenient payment method that allows the cardholder to borrow funds from a financial institution to make purchases, balance transfers, or cash advances.

What is a debit card?

A debit card is a payment method where the payment is linked to a bank account and is limited by how much money is available in a checking account.

Credit Score Ranges

What impacts a credit score?

The most important things are:

Payment History
Credit Utilization

Less important but still worth understanding:

Credit History
Credit Mix
How recently

How do I keep my credit score or improve it?

Pay bills on time
Keep credit balances below 30% of available credit
Do not close old accounts

Understanding Credit Scores

A credit score may vary depending on the credit model used, but generally will fall into one of these categories:

Poor (300-579)
- Individuals may have difficulty getting approved for a credit, and if approved for credit will often face high interest rates.
Fair (580-669)
- Individuals may be able to qualify for credit, but will often still face higher interest rates and fewer options than those with a higher credit score.
Good (670-739)
- Individuals usually qualify for credit with good terms, including lower interest rates and higher credit limits.
Excellent (800-850)
- Individuals in this range typically have no trouble getting approved for credit with the most favorable terms, including the lowest interest rates and highest credit limits.

It is essential to regularly check your credit score and credit report to understand where you stand and take steps to improve your credit if necessary.

You can check your credit from the three main credit reporting agencies once a year for free.