Are You Credit Card Smart?

A new study finds college students lack key knowledge about credit cards.

Are you smarter than a college student when it comes to credit cards? Hopefully so.

A new study from Lendedu, a student loan marketplace, finds that most college students they polled lacked even a basic level of knowledge that they need to be successful and strategic about using credit.

The trouble may be that most students don’t get credit cards until they get to school or even after that given the new lending standards created by the Credit CARD Act of 2009. According to the survey, only 38.4% of the students polled actually had a credit card. Additionally, the lack of personal finance courses in most primary and secondary school curriculum mean most people often still learn financial lessons by trial and error.

With that in mind though, Consolidated Credit wonders if most adults any better than college students when it comes to knowledge of how credit cards work. So below you’ll find some of the headline statistics out of the survey. Compare your own knowledge to see if you’re smarter than a college student when it comes to credit:

  • Only 9.4% of the students polled with a credit card knew the interest rate
  • 78% carry a balance on their credit card
  • Just over half of those (58.89%) knew exactly what the balance was on the card

If you can’t provide the balance and interest rate on each of your credit cards, then you’re effectively flying blind anytime you charge. You can’t be strategic about putting bigger charges that will take a few billing cycles to pay back on a low-interest credit card, while keeping your rewards credit card balances low enough that you can pay them off in-full each month to minimize interest charges and maximize your rewards.

Additionally, the practice of carrying a balance from month to month because it’s better for your credit is often a misconception about using credit cards as well. Some people believe you have to carry debt from month to month and pay interest charges in order to build a good credit score. So they let balances carry over from month to month and only make minimum payments.

However, this is a myth. There is nothing in FICO or other major credit score calculations that requires you to carry a balance every month, nor is there any requirement to pay credit card interest charges. In fact, the less credit card debt you carry over from month to month, the better your credit score.

Credit utilization is the second biggest factor in credit score calculation. It measures how much debt you carry relative to your total available credit line. The closer your credit utilization ratio is to zero, the more likely you are to be able to maintain the good credit score you want.

So as long as you make payments on time – because credit history is the number one factor in credit score calculations – and carry as little debt as possible, you can maximize your credit score. With that in mind, the best strategy is to only charge what you can afford to pay off in-full within that billing cycle.

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