Becoming Credit Smart

1. Compare credit fees. You may pay a variety of charges to use credit cards, including annual fees, late fees, over limit fees and transaction fees. Learn about hidden fees to find the best lender.
2. Calculate the interest payment. Know how each creditor calculates loan interest to choose your best payment method.
3. Know the grace period. A grace period is the time during which no interest is charged for new purchases. Grace periods, which vary by company, usually don't apply when you carry a balance on your card.
4. Make payments on time. Consequences of missing the due date include higher interest rates on future purchases for all credit cards, and late fees until your account is brought "current."
5. Understand credit card statements. Check every statement for correct information, including purchases, credits and payments. Act quickly to correct errors.
6. Beware of "card hopping." Shift your balance to a card with a lower annual percentage rate when the old one rises, but be sure to cancel the first card to avoid fees. Adding new cards to take advantage of lower interest rates may have short-term benefit, but be sure the new permanent rate is also advantageous. A late payment will increase your rate.
7. Do not pay just the minimum due. Paying more than the minimum will save you thousands of dollars over time. A typical minimum monthly payment consists of 90 percent interest and 10 percent principal.
8. Figure out the total cost of the loan. It's important to consider the total cost of credit over the length of the loan, not just the monthly payment. Example: If you pay only $20 a month on a $1,000 credit bill with 19 percent interest, it will take you 99 months (or 8.25 years) to pay it off. The total amount paid totals $2,720. Using credit costs you $1,996, or about twice the original purchase.
9. Repay student loans. These are typically easy to get, but-with few exceptions-they must be repaid beginning six months after leaving school. If you default, and if the collection agency finds you and you refuse to pay, the Justice Department takes over to get you to pay.
10. Try to increase income and reduce expenses before using a loan consolidation. Consolidating your loans encourages borrowing more than is absolutely necessary and merely postpones the problem of reconciling expenses against income. The loans also cost more over time, even with a lower rate.

Source: Financial Success for College Students by Flora L. Williams, Ph.D.