College Students and Money: A few more things

This is the fifth and final in a series this week about financial issues faced by students in college and trade school.

The list of financial topics that are important to students and other young adults is potentially endless, so please don’t assume that I’ve covered everything this week. Whether we are age 20 or age 60, we always need to keep learning about finances, because the financial world keeps changing – and our needs keep changing too. I’m wrapping up this series with brief notes about three more issues I see as critical for students.

Organizing Important Documents. Keeping important documents in a safe place where you can find them easily if needed is a critical skill to learn. And it is important for all key documents, whether they are paper documents, or electronic documents. Examples of important documents include:

  • Financial records of all types – financial aid papers, loan papers, receipts for major payments (tuition, rent),
  • Documentation of required educational costs, because you may be eligible for tax benefits,
  • Legal contracts (e.g. lease, cell phone plan contract) and documentation of pre-existing damage in a rental unit or dorm room,
  • Tax documents, including prior-year tax returns and documents, along with current-year W-2 forms and any other income records, as well as other year-end tax forms received.

I will not pretend this is a comprehensive list. General rule: if you think it might be important, keep it, at least until you can ask someone trustworthy about it. And I don’t mean just keeping it all laying around your room. We want these documents in a safe place where you can find them. That means they should be enclosed (in a box, or an envelope, or a designated drawer), and ideally they would be sorted into groups or sections or folders so you don’t need to look through all 500 documents to find the one you need. On your computer, you need a folder for important documents, probably with several sub-folders.

Protecting Personal Information. This means never giving out key personal information (social security number, birthdate, financial account numbers, and more) without making sure the person who is asking has a good legal reason to need the information. You will generally need to give your social security number for financial accounts, formal academic records, and medical records.

Additionally, only give that information to people when you know for sure they are who they say they are. That means if you receive a phone call and the caller says they are from your bank, don’t assume it is safe. When people call you, there is no way for you to know who they really are. Instead, use the number you already have on file for your bank and call them. Make caution your middle name when it comes to key personal information.

More: What to Consider When Sharing Your Data (Consumer Financial Protection Bureau)

Using Credit Cards Wisely. We could write a whole series on credit cards – and you can search the MoneyTip$ blog for other articles – but I want to focus on three main points:

  • College is an opportunity to build credit. You can do that by getting credit card and using it. College is a time when credit cards want you as a customer – later in your life, it may be more difficult to obtain credit. So go ahead and open one or two credit card accounts, avoiding cards with annual fees. Then use them. It is only by using your credit cards and paying the bills promptly that you create something extremely valuable: a solid credit history.
  • Surprise credit card bills can kick off a downward financial spiral. Therefore, keep tabs on how much you have charged to your card since the last bill. Keep a record on your phone, or on your whiteboard, or in a notebook or your checkbook – it doesn’t matter where you keep the record. Just make sure you’re prepared for the bill when it comes.
  • Credit is generally free if you pay the bill in full each month. Assuming your card has a grace period and no annual fee, you will pay no interest at all on your purchases if you pay the entire balance before the due date each month. Sure, the bill says you only need to pay $25, but as soon as you carry a balance forward to next month, you start accruing interest on every purchase you make.

An ounce of prevention is worth a pound of cure, right? These three habits – organizing documents, protecting personal information, and using credit wisely – will dramatically reduce the number of financial “bumps in the road” you’ll experience during college and throughout the rest of your life. You’ll never regret building these helpful financial habits.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Build Your Credit Score Without Building Debt

Credit Score Gauge
Credit Score Gauge

Does it seem contradictory to say I’m in favor of using credit to build a credit score but I’m not in favor of building debt?  It’s possible that was your reaction after reading the Credit Score Myth post.

It’s true: As a financial educator, I’m definitely in favor of using credit, including credit cards.  At the same time, I’m definitely not in favor of building credit card debt.  NOTE: I followed this belief as a mom, too: when my oldest turned 18, she was very reluctant to get and use a credit card. I pushed her to do both, because I knew how important it was for her to build a credit record.  She’s now in her mid-20’s, and her good credit score is helping her in many ways!

It’s actually not difficult to use credit cards without building debt.  Simply use the card throughout the month and pay the full balance before the due date on the bill.  If you do this, you…

  • won’t be charged any interest,*
  • won’t fall into a debt spiral, and yet you
  • will provide continuing evidence that you can be trusted to pay your bills (thus building or maintaining a good credit score).

Are there potential pitfalls?  Yes.  You need to be smart about this.  You need to charge only as much as you will be able to pay in full at the end of the month.  How can you make sure?  You may find your own strategy, but here are a couple of ideas:

  1. Keep charges so small that paying the bill will never be a problem.  (If you only use the card a couple times a month for small purchases, then the balance at the end of the month should always be manageable).
  2. Set aside money for each charge you make on your credit card.  If you charge $30 for gas, then set aside $30 in your savings account which you can use to pay the bill when it comes.
  3. Every few days log in on-line to your credit card account and pay the balance.  Even if you haven’t received the bill.  That will ensure that you are paying as you go, rather than building up a balance.

Need reassurance?  Consider this: if you are able to manage a checking account carefully to avoid overdrafts, then you should also be able to use credit cards in moderation so you can build a strong credit history without building debt.

~ Barb

*Most credit cards have a grace period, meaning they do not charge interest if the balance is paid in full each month. Make sure your card falls in this category!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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