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5 Mistakes youngsters make when handling credit

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by: No more debt !
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Word Count: 784
Date: Sat, 16 Nov 2013 Time: 9:02 PM

Credit is a great thing. It helps you get what you want when you want it, letting you pay it off when you can. But all too often you'll see college students going out and maxing their credit cards on iPads and take-out, and suddenly that, "I'll pay it back later" mentality becomes, "I can't afford anything." Credit is great, but it can turn bad really quickly. So, to help you avoid the potential traps of credit we've listed five wise money management tips for youngsters.

1. Open a Credit Card Account- Contrary to what counselors and parents and older brothers "who have been there" might tell you, opening up a credit card account can be a good thing. It's may even be a great thing, and the earlier you do it the better off you might be. Why is it a good thing? Simple. It's good for your credit score. A large chunk of your credit score is determined by how long you've had credit lines open, and the longer the better. If you wait to open an account until you really need to take out some credit, like a car loan, you'll have a credit score suffering from a case of bad planning that may jack up your interest rate and empty your savings. Credit isn't a bad thing if you're smart about it. So, as long as you are responsible with your credit use you'll have nothing to worry about.

2. When Collection Time Comes, Pay Up- This doesn't mean just pay the minimum balance and continue living your life; this means being smart about the credit you use and only using as much as you can afford to repay at the end of the month. Ever wonder how people get into financial problems? It's not just a result of living life, because you can only ever have what you earn. Problems arise when people, be it by choice or by unavoidable circumstances, overreach their credit usage and end up having to pay it off for years. The reason it takes years is because of interest, and the longer you have money on your balance the more you'll owe each month. Remember that $30,000 student loan you took out? If you keep paying only the monthly minimum, you'll have paid close to $100,000 by the time you pay it off in full. That's how problems arise.

3. Phone a Friend- Getting your first line of credit can be difficult, since lenders are particularly wary of people who have no evidence of their financial responsibility. If you go in and apply alone, you may be turned down or accepted but slapped with an outrageous interest rate. That's why it helps to know someone with a healthy credit history who can sign on as a co-signer and back you up. Just respect what they're doing for you, because any mess-ups on your part will negatively affect both of your credit scores.

4. Don't Catch Credit Fever- The number of credit applications you make directly affects your credit score, so don't go in for more than you need. Make sure you research the best options for all credit lines you need before applying for any individual account, and open them all within the same month if possible. Opening accounts frequently is a flag for bad money management.

5. Pay on Time- It's been drilled into your brain since the first day of school: don't be late. Never be late, for anything. It might do to be fashionably late to a party, but all that being fashionably late on paying your credit bills gets you is a strike on your credit score and a jacked up interest rate, not to mention late fees. In proving you have smart money management skills by paying bills on time, lenders will be more likely to fund you when you need a helping hand.

Credit should be a beneficial service to you; an option that lets you get what you want sooner than you might otherwise. The problems occur when you fall into poor habits and dig yourself into a hole you can't get out of. When teaching young people the most important of the wise money management tips for youngsters be sure to include advice to review your credit score and to check your credit report on a regular basis. This will help to keep tabs on what they're doing right and what they may be doing wrong.

About the Author

Joy Mali is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.

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