Having a credit card is often exciting for college students because it’s not just a step towards being an official “adult,” it usually translates to “free money.” Obviously, the latter is very far from the truth. However, that doesn’t stop droves of college students from using credit cards unwisely.
Before even signing up for a credit card, it is important that students understand how they work, the fine print that comes with such a responsibility and how to manage their credit cards properly. Knowing the following three things about this subject–specifically credit card limits–can go a long way towards building a strong credit score and maintaining a healthy routine when it comes to learning how to budget and spend smart.
#1: The Credit Limit Doesn’t Mean That’s What You Should Spend
Most college students are familiar with getting credit card offers in the mail. Upon graduation, the number of these offers only seems to skyrocket. Being approved is undoubtedly exciting to someone dealing with this for the first time, especially once they see what their credit limit is.
However, it is crucial to understand that (for example) having a $2,500 credit limit doesn’t mean it’s the green light to quickly put $2,450 on your card.
Why? Keep in mind, this isn’t “free money,” it’s simply money that isn’t owed right away.
Any purchase you put on a credit card will come with interest. This means you won’t be paying back the exact amount you originally put on the card.
Charging an amount that is almost close to your limit means you’ll owe that amount plus all of the interest that has accumulated. That’s definitely not a good thing for your budget or your credit score.
While having a high credit limit is flattering, don’t let it become a temptation. To maintain a good credit score, it is best to keep the balance to 30% or less of the limit.
#2: Don’t Let a Changing Credit Limit Influence Your Spending
Individuals that consistently make their monthly payments on time will eventually get a raise in their spending limit. This may seem like good news but it is temptation in disguise. Even if your credit limit gets bumped to an amazing amount, maintain your current spending habits.
Just because the extra money to spend is there, doesn’t mean you have to use it. However, getting a raise is ideal in case of emergencies where you may need the funds to give you breathing room. But make such decisions wisely and remember how much you’ll end up owing after interest has been added on.
#3: Credit Limits Can Be Raised If You Ask
Getting a higher spending limit on a credit card doesn’t just happen automatically over time with good behavior. For those that feel they need it, it is possible to ask the lender to increase your limit. Not everyone that makes this request gets approved and there are certain criteria that must be met (depending on the lender).
However, students in particular shouldn’t make such a request if they’re currently having trouble making their existing payments.