Read Part I on Credit Cards

What You Do Today Will Impact You Tomorrow

Students often think that whatever they do in school does not follow them to business life. While this may apply to your drunken antics, financial records often stay on your file for up to 7 years. So late payments, missed payments and other black marks may hurt you get a loan, mortgage or even employment down the road. This is why credit cards can be so vital yet dangerous.

What To Use Them For

Things like groceries and textbooks are fine – so long as you intend and are able to repay the amount sooner rather than later. Clothes are fine so long as you need them. You should pass on the excessive spending, so no lobster and Cristal for now. This said, you do live once, so treat yourself once in a while.

What Not To Use Them For

Who does not like to party? Everyone does but using plastic on booze is not a good idea. It is dangerous and will get out of control very quickly – for both your drinking and credit card balance. If you are seeing someone, you can buy the odd flowers or even pay for entire date, but do not go overboard and think that you can live like royalty. For one, you will be in debt fast. Second, you will give the wrong impression to your date.

Pay Everything Off

As a general rule, it is always good to pay off your debt. Warren Buffett once said that you never know who is swimming naked until the tide goes down. So leave your credit cards for underwear and cover up.

Pay At Least The Minimum Amount

You must always pay the minimum amount even if you cannot pay the entire balance. Missing the minimum payment is a signal that you are in financial distress. It goes on your permanent financial record. One missed payment is not the end of the world but a second should be avoided at all costs.

Banks often force credit card holders to pay either 3% or 5% of the amount owing. Some banks try to lure clients by saying that the minimum monthly payment is only 3%, instead of 5% of the amount owed. This seems attractive but all it means is that you can pay less now, but much more later on and incur far more interest.

Pay Something Every Month

The more you pay each month the better off you are. Get into the habit so that if you have a mortgage in the future, you will pay that off sooner rather than later as well.

Have The Right Card

Make sure that you are using the right card for you. Some may have flashy points programs but they charge you more interest. If you do not carry a balance and do not take out cash advances, you do not pay interest so this is irrelevant. If you do carry a balance, no point program will make up for the interest expense; so choose a low interest rate card.

Inquire about student cards that charge no annual fees, offer good discounts on relevant purchases and are more flexible.

Cash Advance – Step Away From The ATM

Cash advances are loans and thus begin to incur interest immediately. Banks also have complex interest charge formulas that apply until all charges are paid off, thus prolonging the gut wrenching interest paying period.

Are You Interested?

If you do not carry a balance, then you pay interest only if you take out cash advances. Once you start to pay off your loan, the interest accrues until you pay it all off.

Banks also reserve the right to change interest rates. They do have to advise you by mail though, so read everything you get.

Check Your Statement

Banks make mistakes and everything that happens to your account should be reflected on your bank statement. The first thing you should do is cross-reference your purchases and make sure that they are correct and indeed yours. If anything out of the ordinary appears, contact your bank immediately and ask them to investigate. Some bank employees may ask you to investigate on your own behalf with the merchant. This is wrong as it is a basic service in your package. Other times, you may see duplicate charges for the same charge. To their "credit," banks often resolve these matters to the client's satisfaction.

Don't Run With Scissors... Walk

A time will come when you have no choice but to realize that cards are not for you, at least not while in school. You may then wish to cut the card and let your institution know that you are not using it.

One More Thing

One thing that business students should keep in mind is that having a card means that you are building your credit history and rating. The better you nurture it, the easier it will be for you to get a business loan, credit line and mortgage down the road. So even if you cut the card, it may be prudent to leave the account open and pay off the balance over time.

Communicate With Bank

If you decide to close the account, make sure that you specify that you wish to close it on your terms. There is a big difference between closing an account at your request and having the bank close it for you. Get the agent's name and ask that they send you a letter confirming that it was closed at your request. Usually you can reopen accounts that have been closed by simply giving the bank a call. You can only do this within a short time period: usually three months. Accounts that are closed by the bank need to get approved again, so this means a new application and it will take longer. It could also mean that you get turned down.

Regardless of what happens, no need to stress.