How to Build Great Credit While Avoiding Credit Card Debt

The answer to this question is simple: use credit responsibly. This applies to credit cards as well as student loans, auto loans, medical bills, and other financial relationships. In general, it means not borrowing more than you can afford to pay off and paying your bills on time.

When it comes to credit cards, however, there’s more to learn if you want the best credit score possible. Credit cards are somewhat complex financial tools, and understanding how they work will let you use them effectively to your benefit while constantly improving your credit. After you understand the basics of credit reports and scores, you’ll be ready to learn about credit cards, the kind of terms they have, and what you can do with them.

“A credit card is a short-term loan, not a tool to live beyond your means. Charge only what you can pay back in full each month when your statement arrives.”

-Robyn, Money Care VT

The Biggest Credit Mistakes That Students Make

  1. Getting Credit Cards without Understanding How They Work

    Simply put, students would make very few mistakes with credit cards if they understood how they work and how they affect your credit. While there is some mystery around the credit approval and credit scoring process, there is nothing mysterious about using credit cards responsibly (check out our guide to responsible credit use here).
    Credit cards are deceptively easy to get and to use, but they are serious financial tools that will affect your life. There is no licensing process that requires you to pass a test proving you are knowledgeable enough to use a card; it’s up to you to inform yourself about the benefits and hazards of credit cards.

  2. Carrying Too Much Debt

    According to a survey by Fidelity, 25% of students who graduated in 2013 carried credit card debt with them, at an average of $3,000 per graduate. This is way too high, especially considering that most students (70%) who graduated that year also left with student loan debt, at an average of over $35,000.
    Carrying high balances on your credit cards not only costs you money, it can also negatively affect your credit score.
    According to most experts, to get the best credit scores you’ll want to keep your total credit card debt at less than 30% of the total of all your credit limits added up.
    So, if you have 2 credit cards that each have a $500 credit limit, your total credit limit is $1,000. This means that you would want to keep your total credit card balance below $300 at the statement closing date.

    We recommend paying off your credit card balance in full each month before the due date, especially for students. You should always consider a credit card purchase as being made with your own money from your bank account, which leads to the next mistake.

  3. Buying Things You Can’t Afford

    It’s true that credit cards can increase impulse spending, giving some people the urge to spend money they don’t have. The best ways to combat this tendency are to be aware of it, to think of your credit card as being intimately linked to your bank account, and to plan on paying off your credit card bill in full every month.
    If you plan to pay your bill every month (or even every week) you’ll be able to easily keep your spending in check when you see your bank account dwindling every time your credit card balance goes up. You’ll soon naturally associate your credit card with your bank account, if you didn’t already.
    Remember, credit cards are a type of loan that you will need to pay back. They are not free money.

  4. Paying Only the Minimum Payments

    Every month you’ll get a statement from your credit card issuer detailing the previous month’s payments. If you have a balance, you’ll be asked to pay at least a minimum amount, usually a rather small amount.
    It’s a mistake to think that you can just pay that minimum amount each month and be worry-free. Doing so will cost you money as your remaining balance accrues interest each month, with more and more building up because credit card interest is compounded. You also might be damaging your credit score by carrying too much debt from month to month, like in #2 above.
    Don’t get in the habit of making only the minimum payments and revolving a balance every month. Pay off your bill in full each month whenever possible, and be aware of the consequences that come from having a high balance compared to your credit limit.
    A good strategy to get a handle on your credit card spending is to check in on your online account several times throughout the month, and make some payments to reduce your balance as you go instead of waiting until the end of the month.

Using Credit Cards Responsibly

Credit cards are powerful and they can be used in many ways. In many cases, some of the nuances in their terms may need some explaining. We’ve put together a guide to using credit cards responsibly here.

What you’ll learn in this guide:

  • How to use credit cards to get the best possible credit score
  • How to check your credit reports for fraud
  • What the Schumer Box is
  • Why you should beware the cash advance
  • How much you should spend with your credit cards
  • How many credit cards you should have

Read more »

The Definitive Guide to Building Credit from Scratch

There are many ways to build credit, as well as several types of credit cards that can be useful. The same principles of responsible use apply to every method.

What you’ll learn in this guide:

  • How to check your credit
  • Different types of cards that can help you build credit, like secured cards and retail store cards
  • What it means to become an authorized user on someone else’s account, and how that can help you build credit
  • What it means to co-sign for a card, and if that is a good way to build credit (hint: it probably isn’t)
  • How to monitor your credit to be sure you’re on track
  • How to reap bigger rewards as your credit gets better and better

Read more »

Learn Better Money Management with is a real-time personal money management tool that gives you a helpful snapshot of where you are and where you’re headed, financially speaking.

Mint offers budgeting, goal setting, trend-watching, investment analysis and money-saving tools, most of which are fully customizable.

Read more »

Was this helpful?

The Insider

Brendan Harkness
Best Balance Transfer Credit Cards – 2017
Brendan Harkness | May 15, 2017

Balance transfers let you move debt from a high-interest account to one with lower (or zero) interest, but which cards have the best offers? Find out here.

Read More
John Ganotis
U.S. Bank Altitude Reserve Visa Infinite Card Review: Is it worth the $400 annual fee?
John Ganotis | May 11, 2017

The U.S. Bank Altitude Reserve Visa Infinite Card has lots of benefits, but is it worth the $400 annual fee? Read our review to decide for yourself.

Read More
John Ganotis
MasterCard® Black Card™ Review: Is it worth the $495 annual fee?
John Ganotis | Mar 01, 2017

The MasterCard® Black Card™ is a metal credit card for people who travel frequently. But are its benefits worth the $495 annual fee?

Read More