Credit Cards 101: it’s not just extra cash

It’s 2 a.m. A person stumbles leaving a certain nightclub, a little drunk and hungry, they check their wallet. Only a $10 bill for the cab ride home. It was a $20 but one last shot of whiskey was taken to brace for the cold night air. Decisions. An ATM, the debit card is out of money, bills. But the credit card has just enough. Bite the bullet, max out the card, eat the pizza, get home safe – only to wake up in the morning full of regret knowing the pizza didn’t taste great enough to ruin your credit.

These are the kind of drunken mistakes my drunken alter ego is notorious for. I guess hindsight I would suggest don’t drink and credit card, but reality is its hard establishing good credit as a broke university student. Good credit, though, can be a road map to a well-balanced budget and can offer an affordable mortgage later on in life. It shouldn’t be thrown away for that late night slice of pizza.

Credit was formed to allow trustworthy characters the ability to pay back the business directly from their bank account, much like debit today, eventually developing to what it is today. To stay on top of interest rates, a person should adopt the early philosophies of credit.

A bad mind set, like my alter ego’s, is to view credit as an extra cash source. It’s emergency funds that should be viewed as money you have to pay to use. As some financial experts point out,  the interest rates of some financial institutions exceed the minimum payment option, the option many university students stick to. So whenever possible pay more than the minimum payment, and those with extra cash should try to pay three times the minimum payment.

Financial institutions have plans that cater to university students, such as student-only chequing-savings accounts along with student-only credit cards. I’d advise taking advantage of those kind of deals, but also warn not to do what I do. Take credit cards seriously; great credit could lead to some good possibilities when financing cars or houses, but bad credit could haunt you for life. So when taking out your first credit card, treat it as tool to getting affordable mortgages or cars in the future.

It’s good to let it build but having money squared away to pay off is the responsible thing. And not my way of paying $40 to take out another $80. Fiscal responsibility is learning to balance between needs and wants and learning the proper way to treat credit.

When one has mastered the first stage of the credit climb and the credit limit increases, it’s good to keep in mind it shouldn’t exceed 30 per cent of income, meaning with a limited income of $700 a month my credit for the month shouldn’t exceed $210. Hopefully my limit will increase if I land a career. But the moral is living within ones mean. Eventually, understanding the complexities of credit could lead to fabulous credit.