Today affects your future

When Bob graduated from high school, he had his whole life to look forward to. Anticipating a great college experience and a career in business, he left for SMU. As he walked out the door, his parents handed him an emergency credit card on the condition that he would pay the bill using the money they gave him. Thinking he would learn how to manage his money, Bob’s parents sent him to Dallas.

With Labor Day approaching, Bob made plans with his new friends to road trip to Shreveport, La., to enjoy a weekend of fun and gambling. Once in the city, they ran into some difficulties. They did not have enough money to stay at a hotel and gamble. Bob felt that the situation was an emergency and took it upon himself to rent a room and put it on his credit card.

Back in Dallas a few weeks later, Bob opens his mail to find his credit card bill. Since Bob did not come close to having the finances to pay the bill, he was grateful to pay only the minimum balance, seeing the benefit of a credit card. And so he began to swipe – at bars, restaurants, stores, everywhere. At the end of the semester, Bob was left with $5,000 worth of debt on his card with no money to pay for it.

Faced with graduation and a poor credit record, Bob could not get a job or a loan for an apartment or a car. He could not even get insurance. Bob found his life at a standstill, with doors shutting all around him, all because of bad credit.

Is this a scenario that could all too easily be about you? Are you like Bob, naïve about credit?

Credit is a powerful financial tool. Credit cards allow you to buy now with the promise you will pay later. They allow you to carry money without the hassle of cash and allow for a way to make larger purchases paid over time. They provide finances in an emergency and help develop a good credit history. The effects of credit can either make life more successful or cause great impairments on future plans. Credit cards can either help manage finances or they can manage you. Having credit cards is a big responsibility; if taken lightly and used improperly, they can lead to unmanageable debt and financial crisis.

This is a specific problem among students at SMU. Only 40 percent of SMU students pay their own credit card bills. This figure is alarming, as it indicates that most of these students will probably not deal with a credit card bill until after college graduation. Will they be ready to pay their own bills? Do they know enough to be able to responsibly build good credit? Unfortunately, most people learn about personal finances through trial and error, a method that almost guarantees plenty of error. While no method ensures success, having the right information about credit management can help.

Using a credit card is like getting a loan. Every time you charge something, you are borrowing the money until you pay it back later that month, during the next billing period or over time. In exchange for the luxury of paying this loan back over time, the credit card company adds finance charges to your account, which you must pay along with the purchase amount. By using your credit wisely and always paying your bills on time, you are building good credit history.

Credit cards are centered on the idea of taking responsibility for your own actions. As college students, this is the time to take control of your own personal finances and begin to build good credit. Start by being responsible with your credit card usage. Although credit cards give a feeling of power, they do not, in fact, give you more money. They only change the way you pay. The more you understand this concept, the easier it will be to avoid dept and plan for financial success.

To gain knowledge of your own personal credit history, it is essential to view your credit report. At SMU, 70 percent of students have never before viewed their personal credit report. In addition to this figure, only 40 percent even knew how to obtain their personal credit report. A credit report is a synopsis of your credit history, tracking whether or not you have paid your bills on time. Your credit history can have positive or negative effects in dealings with each one of these groups.

So how do you develop a good credit history? Create a budget. Learn to keep track of finances. Figure out what you can afford to spend and set goals for saving, determining what expenses are necessary and what can be cut back. Based on your monthly income, determine how much you spend each month, figuring in fixed costs such as rent or car payments and add in variable a expenses, such as groceries. Then, calculate your bottom line by adding all expenses and subtracting total expenses from your effective monthly income. Once you have your bottom line, determine if you are spending too much. These simple steps will help make credit cards manageable and reduce the risk of debt.