College students should know ABCs of credit score reports

Adhvith Dhuddu, CT regular columnist

Wednesday, March 19; 12:00 AM

Here's a startling statistic: In the economies of India, China and Russia, the ratio of people to credit cards appears healthy (ranges from 1 credit card for every 20 to 50 people), but in the U.S., the equation reverses, averaging 3 to 5 credit cards per person.This clearly shows how credit-dependent we are, but also reflects the requisite nature of credit cards in an increasingly cashless economy. With this in mind, the importance of maintaining, tackling and improving your credit history and credit scores cannot be more highly stressed.

Your credit score is a financial report card outlining how you have handled debt historically, helping corporations decide how creditworthy you are. Going forward, your credit score might be much more important than you think it is. When the Facebook generation steps into corporate America, unlike in the last century, when credit scores only mattered during credit card, home and car loan applications, in the future credit scores will determine everything from how your bills for water, electricity, cable and Internet are handled to your pay structure for televisions, laptops and other accessories.

The three broad aspects to focus on are obtaining your credit score, analyzing your credit score to report errors, corrections, and finally, outlining a plan to improve your credit score.

Credit reports are compiled by three companies: TransUnion, Equifax and Experian. The information in these reports is presented differently, and these organizations also calculate their own credit scores (Equifax has ScorePower, Experian has a PLUS score and TransUnion has its VantageScore). But it's your FICO score, compiled by the Fair Isaac Company, that is the all-important number. This score is derived from the information provided in the abovementioned reports and ranges from 300 to 850.

Taking the initiative to obtain your credit report is the first step. We are permitted to obtain one free credit report in a 12-month period from each of the three agencies or from FICO. The three agencies run a Web site, www.annualcreditreport.com, where anyone can request a report. This can also be done by calling 877-322-8228. Also, if you are rejected for a loan, denied a credit card, etc., you can ask for your latest credit report for free from one of the agencies (this has to be done within 30 days of rejection).

Close to 20 percent of all credit reports contain errors that might result in you paying a higher interest rate for a loan or rejection for a home or car loan. Sometimes the consequence can be devastating, such as losing a job. So it's important to go over and check for errors, misrepresentations and typos, and alert the credit reporting agencies. These agencies are obligated to fix errors when you point them out, and although the process is time-consuming and bureaucracy-oriented, it's worth it.

Finally, sketching out a plan to tackle the blemishes on your report and improve your credit score will be a drawn-out process requiring restraint, discipline and self-control. Here are some basic pointers to keep in mind when you are in the mall wanting to pull out your credit card to get your hands on those American Eagle jeans.

Your FICO score (or credit score) is derived from different aspects, such as handling of debt, number of credit cards, and credit limit to balance ratio, but without getting into the details, here are some things that might help or hurt your score.

Make sure you pay your bills on time; late payments tend to have a negative effect on your score. Your ratio of credit available versus outstanding balance is an important factor in your credit score. For example, if your credit limit is $2,000 and your outstanding balance is $500 with $1,500 credit remaining, your ratio is 25 percent. Lowering this number by clearing outstanding debts faster has a positive effect on credit scores.

The average age of your account is another determinant of your credit score. So, two things are important here: Try not to cancel your oldest card and don't unnecessarily apply for new credit cards. Refrain from applying for in-store cards such as the GAP cards and Wal-Mart cards, because this has a negative effect on your credit score.

Mastering the art of handling credit is not child's play and requires discipline, constant self-scrutiny and consistent follow up. It's a good habit to have, and starting in college is definitely beneficial. Countless books exploring credit scores have been published, and individuals have underpinned careers analyzing credit scores, so reading an article is only the first step.

But one book, the "Wall Street Journal Complete Personal Finance Guidebook" by Jeff Opdyke, is a comprehensive personal finance journal and also helps navigate aspects relating to credit.

Online link to this article: Click here

Money WhizDom: Does your financial quotient line up with your EQ and IQ?

Adhvith Dhuddu, CT regular columnist

Wednesday, March 12; 12:00 AM

Your IQ is probably what got you into this excellent university, but developing your emotional quotient is equally important in shaping your personality. By graduation, our experiences in and out of class boost our IQs and EQs significantly.

But your financial quotient is what will shape your financial future. Your financial knowledge will dictate how well you handle credit, the quality of your savings and investments, how well-padded you are in a crisis and how well you plan for retirement. Whether you like it or not, financial planning is an integral part of everyone's life, and with a high FQ you can successfully plan your finances and finance your plans.

Closely scrutinizing yourself to see how you score on the FQ scale is relatively straightforward and easy. Your FQ is primarily derived from the following aspects: how well you handle debt, investment planning to battle inflation, spending habits, tax planning (when you step into corporate America), and finally, saving and retirement planning. Having worldly knowledge in these five areas will greatly help secure your wealth.

Many of us take on debt early on in life through credit cards, college, and car and home loans that we strive to pay off our whole lives. Although all debt is not bad, it's important to understand the difference between good and bad debt. Undertaking debt for college to add value to yourself, to help you climb the social and economic ladder, is without a doubt good debt. Devouring your credit limit for unnecessary purchases that you will spend years paying a 17 percent rate on is bad debt.

People undermine the importance of investing and often fall prey to myths suggesting the high risks involved in stocks, bonds and commodity markets. These are safe investment vehicles and will inevitably be part of your long-term portfolio to create wealth.

In the last 80 years, stocks have returned 9 to 10 percent compounded annually, compared to corporate bonds and government bonds returning 4 to 5 percent and treasury bills earning 3 percent. In the same period, inflation averaged 3.5 percent, and these numbers are likely to hold going forward.

So the best way to battle inflation is certainly not treasury bills and savings accounts earning 1 to 2 percent, but a balanced blend of quality stocks and corporate bonds. The power of compounding clearly shows how inflation devalues your money. For example, $1,000 you earned in 1980 is worth approximately $380 today.

Clearly, a penny saved is not a penny earned because that penny will depreciate in value (bacause of inflation) if it sits idle in a checking or savings account. This also does not mean all your earning should be invested in high-yielding securities and bonds. There are many risk-free financial instruments, such as certificates of deposits, high-yielding savings accounts, and treasury inflation protected securities, that will preserve the value of that penny.

The American economy is driven by spending and consumerism, and every individual seems to have an unending desire for material wants. Indulging in extravagant purchases beyond your means is sure to get you into a financial ditch. Clearing all outstanding debts before big purchases is vital.

Planning and managing your taxes will be another important part of your career. Mastering the voluminous tax code would take a lifetime, so this department also calls for basic understanding and an intelligent tax adviser.

Having basic understanding of the above-mentioned concepts is crucial for two reasons: to prevent your financial planner from exploiting your ignorance, and to understand what your adviser tells you so that you can cautiously assess the pros and cons of your financial plans.

Online link to this article:
http://www.collegiatetimes.com/stories/2008/03/12/does_your_financial_quotient_line_up_with_your_eq_and_iq_

Money WhizDom: Decode the world of investing with knowledge

Adhvith Dhuddu, Regular Columnist

Wednesday, November 7; 12:00 AM

Investing without sufficient knowledge is like driving your car blindfolded or entering a football field with no gear on. You are bound to get clobbered and will end up on wrong end of a fiscal beating sooner rather than later. With that said, it also wouldn't be appropriate if the investing world hung a sign like, "Enter at your own risk," because risk in investing can be eliminated.

The first step is to become educated and learn about the different investment vehicles the financial universe has to offer. Just understanding all the available options wins half the battle, and the next step is analyzing these to see which investment vehicle will suit you best and yield the highest returns.

Investment opportunities abound, everything from currencies and commodities to real estate and stocks offer a chance to grow money. But when we identify an opportunity, it often appears hard to exploit due to lack of funds or information. Diverse investment vehicles are present to tap these opportunities, but we as students can use two specific instruments called Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) because they don't require capital in the hundreds of thousands and are easy to decipher.

With emerging markets looking more attractive, real estate dilly-dallying, and the commodity market experiencing a boom similar to the stock market in the late 90s, these financial instruments are becoming popular among amateur investors with less cash. Anywhere from $500 to $1,000 is sufficient to get your foot into investing and trading commodities, currency, mutual funds, real estate, stocks and emerging market securities. Something like this would have never been possible just a few years ago.

ETFs and ETNs function a lot like stocks. They can be bought and sold with the click of a mouse, and they don't charge annual fees like mutual funds, or consulting fees if you directly purchase real estate, or handling fees if you trade in commodities. For example, after your finance class you feel that the real estate market has hit its bottom and will rebound soon. Instead of regretting the fact that you can't buy a house in this depressed market, you can cash in on your prediction by purchasing a real estate ETF, which tracks the real estate market as a whole. If you are right, the price of the ETF will increase, and you can take home a tidy profit.

Two famous real estate ETFs are DJ Wilshire REIT ETF (ticker — RWR) and Vanguard REIT Index ETF (ticker — VNQ). REIT stands for Real Estate Investment Trusts. Investing in REITs can also give you some tax benefits. Maybe you diagnose the American economy as treading on thin ice and want to invest in precious metals such as gold, silver and platinum as a safe haven. Rather than shelling out $800 to buy an ounce of gold and get a special locker to store it, you can buy the gold or silver ETF (ticker — GLD or SLV) and watch it move in tandem with the price of gold. GLD quotes 1/10th the actual price of gold; for example, if an ounce of gold costs $768.50, the gold ETF, GLD, can be bought for $76.85.

You have seen oil prices skyrocket in the recent months and foresee no reprieve. But it would be ridiculous to buy ten barrels of crude oil, stack them in your apartment and sell them later. A much easier approach is to purchase the United States Oil Fund ETF (ticker - USO) and watch it rise in price as crude oil prices go up. There are ETFs that track the stock market indices like the Dow and NASDAQ (ticker — DIA and QQQQ), but what if you think the stock markets are headed down? Amazingly there are ETFs that track the stock markets in reverse. For example, UltraShort QQQ (ticker — QID) tracks the NASDAQ in reverse direction times two, e.g., if the NASDAQ goes down 2 percent the QID increases by 4 percent, and if the Nasdaq goes up by one percent QID would go down by 2 percent.

Stock markets in Southeast Asia and Latin America have been buoyant, and this optimism will persist for some time to come. Again through ETFs, you can invest in countries such as China, Japan, Korea, India, Brazil and Russia without worrying about transferring money, exchanging currencies and setting up local investment accounts.

There are lots of other ETFs and ETNs that track mutual funds, hedge funds, commodities, individual sectors, economic indicators, etc. So, exploring investing through ETFs and ETNs is a good way to start investing even if you lack sufficient funds or posses limited information.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/11/07/column__decode_the_world_of_investing_with_knowledge

Money WhizDom: Plan from your first paycheck

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 30; 9:26 PM

Your five fingers correspond to five unique things that you can do with your money. You can save it, spend it, invest it, pay off your debt and give it to charity. Every transaction in your life will correspond to one or more of these five functions.

A frugal person will tend to save more and reckless individuals will spend most of their lives paying off debts. Of course, the ideal combination is to have huge investments and savings with no debt and little spending. You can achieve this easily by following a regimented routine beginning at a young age.

Everyone gets excited about a first paycheck, but few people have a plan outlining how to use the money. Inconsistent spending habits and occasional debits from the savings account will leave you in a financially unstable situation.

The aim of every financial plan should be to first get rid of debts and then to increase savings and investments. Most of us take on debt (college loans, credit card debt or car payments), but it is smart to pay off your debt early and you don't necessarily have to follow the monthly payment scheme. Following the monthly payment scheme is the least optimal option for you; it's what the credit card or mortgage company would prefer you do so that they can optimize their returns. It's simple, the longer your debt is outstanding, the more interest isaccrued and the more you end up paying. There is no harm in making more than the required monthly payment to accelerate clearing your debt.

As conservative as it may sound, having consistent spending habits with few outliers will help you in the long run. After clearing your debt, it's important to stack away some cash in savings before you venture into investing. If you love taking risks early on, buying stocks and exploring real estate options will help. Another good practice is to enroll in an automatic savings plan, or ASP. Most banks offer this service and after your approval will transfer a portion of your salary to a higher-yielding savings account on a bi-weekly or monthly basis.

A simple and efficient way to evaluate your financial stability is to treat yourself as a company. Every organization has a balance sheet, listing its assets and liabilities that it releases along with its income and cash flow statements when it reports quarterly earnings. Company assets (which increase the company's value) include land, cash, machinery, etc., and its liabilities (which drain on the company) are its obligations such as loans, outstanding payments, etc.

You can make a similar balance sheet to list your assets and liabilities. Your assets will include cash (checking, saving, money market accounts, etc.), investments, CDs, home value, etc., and your liabilities will cover credit card debt, house, car and tuition loans, etc.

Now, calculate your current ratio to see how financially stable you are. After summing up your assets and liabilities, your current ratio is equal to total assets divided by your total liabilities. If this resulting number is more than two and you plan to consistently pay off your debts, you are financially well balanced. If the resulting number is less than 1.5, you need to start spending less, clearing off more debt, and increasing your savings. Doing this on a quarterly or semiannual basis is a good practice.

Time and money are two things you need to manage well in life, and a university education teaches you how to manage your time well. Getting a head start on how to manage money well in the real world is always an advantage. So, don't get a job and continue to stay "just over broke (JOB)" throughout your life. Manage your money well from your first paycheck on and become a financially competent individual.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/30/money_whizdom__plan_for_your_financial_future_from_your_first_paycheck

Money WhizDom: Start now to taste success early

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 23; 9:55 PM

Bill Gates, Warren Buffet and Michael Dell have something besides an abundance of wealth in common. They identified and pursued their passion and, most importantly, started early in life. Whether it's investing, entrepreneurship or even a full-time job, excelling early will put you on a path to financial success and early retirement.

A university environment is an ideal place to start. Here you possess something very precious: time and freedom, which will soon become scarce when you enter the real world. In addition, you have access to unlimited resources and knowledge in the form of professors, research centers, a voluminous library, clubs, organizations, etc.

Here at Virginia Tech, there are innumerable opportunities to give your career an early boost. Remember that your undergraduate and graduate colleagues take the same classes, study the same textbooks, hear the same lectures and are exposed to the same knowledge. How you manage your free time in order to add more feathers to your hat is what will make you more marketable and appealing than your classmates.

Bond and Securities Investing by Students (BASIS) and Student-managed Endowment for Educational Development (SEED) are two top-quality organizations that budding investors, money managers and entrepreneurs should consider joining. Here you will meet some intelligent and highly motivated individuals striving to make money yield handsome returns for the university. Although admission to SEED or BASIS is highly competitive, getting a foot in the door is beneficial. SEED invests university funds primarily in securities and BASIS concentrates more on fixed income investments.

"It's a unique experience to manage large funds at such a young age. With students from different majors involved in the decision making process, you learn a lot because you have to incorporate diverse opinions while assessing different positions and trades. Investing as a team is poles apart from investing individually," said BASIS member and junior mechanical engineering major, Nandan Shah.

Shah also expressed how the team feels a sense of accomplishment when a certain investment goes through. It's one of those rare win-win situations where the school makes money and you learn a great deal in the process. SEED and BASIS are two elite groups from which many investment banks and asset management companies are known to hire regularly.

Recently, Tony Yang, a senior undergraduate industrial and systems engineering student, started the Private Entrepreneurs Society, where budding entrepreneurs meet weekly to discuss and evaluate potential business ideas, real estate ideas and investment opportunities.

"It's different here," said co-founder and class of 2007 alum, Josh Prior. "As we are not associated with the university, we can execute potential business ideas with making profits the primary goal."

"Everyone in the society got involved automatically because they know their work will be rewarded via the revenue sharing business model," Prior added. Although admission to this society is by invitation only, Yang expressed a desire to expand the society. He can be contacted at private.entrepreneurs@gmail.com.

Leadership Tech and ELITE are two more associations where you can hone your leadership, communication and people skills and learn how to be a high-performance individual. And you get to work with like-minded people to achieve your passion, which is a great feeling.

It's not vitally important for us to start making millions by the time we graduate, but what is essential is that we have sufficient practical knowledge in addition to the academic knowledge that all of us possess. So, one definite way to get ahead in this rat race is to start right and start early.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/23/money_whizdom__start_now_to_taste_success_early

Money WhizDom: Unraveling money matters with friends (CT Column 4)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 18th, 2007

Lisa owes me $14 for groceries. Pay electricity and rent by Oct. 5. Split the $24 pizza bill by three and collect money. Pay Shaun $45 for books.Is this how the back of your notebook looks? Or maybe your refrigerator has sticky yellow notes all over with these reminders. It is unavoidable that in a cohabitating situation you will have financial entanglements, but there is a much better way to manage finances between your friends and roommates.

One solution lies in a Web site, www.buxfer.com, developed by two graduate students in California. Short for "Bucks Transfer," this Web site was developed specifically to alleviate the confusions faced by students in sorting out money issues amongst friends and roommates. This online resource essentially helps you track where you spent your money, who owes you money, how you should split bills, when you should pay your bills and many more things. It also analyzes all these aspects and has incredible pictorial and graphical representations of the same.

Besides being tremendously user-friendly, the Web site is simple and straightforward to use." We have tried to keep the site very simple and devoid of any financial jargon," said Ashwin Bharambe, one of the Web site's co-founders. Created by students for the students, you can navigate the Web site effortlessly, and understanding the workings of the Web site is extremely easy.

The application's versatility can be felt from the beginning. You don't even need to create an account and can log in with your Google, Yahoo!, Facebook or AIM accounts to use Buxfer. The straightforward interface immediately allows you to add a new transaction for both individual and shared accounts.

There are also features allowing users to invite friends and colleagues to share an expense, remind them of a payment, etc., and also keep track of all your transactions. Buxfer's direct link to Amazon payments makes it easier to settle debts between friends.

The Web site even has excellent mobile support. You can interact with Buxfer using SMS text messages, twitter or the mobile optimized http://m.buxfer.com/. This keeps you informed of your on-the-go cash expenses, which are very easy to miss out on.

Another great feature Buxfer boasts is the real-time budget alert system to help you be more prudent.Using this you can set up budgets in order to control your expenses, helping you make an informed decision when you are out in an electronics store trying to quench your compulsive shopping desire.

It's important to learn the significance of budgets, and budgeting early on in life. Using tools like these, you can devise lenient spending plans and prevent yourself from getting shocked when you see the bank statement at the month's end. People may think they're being confined by using budgets, but spending money prudently is vital to being financially successful. Remember, wealth is accumulated; it's not produced overnight.

Like most personal finance management (PFMs) applications, you can also import bank and credit card statements to your Buxfer account. This could make Buxfer a one-stop-shop to manage all your money matters, be it saving, expenditure or budgeting.

To top it all off, Buxfer has an application on Facebook itself. By adding this widget on to your Facebook homepage, inviting friends to share expenses and making timely payments becomes even easier. The founders stressed the importance of this essential appeal to a younger audience they would attract by having a Facebook application.

"One of the important benefits of Buxfer is that it removes the guilt out of friendly borrowing. It also makes finances transparent and as a result, removes money as a source of arguments between friends," Bharambe said. As students, this is a great tool to use to simplify our financial worries and better manage our money. Spending a few minutes analyzing and planning our expenses could help in the long run.

Next week, read about critical issues currently facing the U.S. economy and how they affect our lives here in Blacksburg.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/18/money_whizdom__unraveling_money_matters_with_friends

Money WhizDom: Is your bank bullet-proof? (CT Column 3)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 12th, 2007.

College teaches you many things, but one thing it does not teach you is how to make your money work for you. Financially successful individuals actually derive most of their wealth from their money's hard work and not the salaries they earn.

Most of us have our pocket money for the semester parked in a bank to which we pay absolutely no attention. Choosing the right bank for your savings and checking accounts is important, and recognizing this early in life will greatly help in shaping your financial future. Here are some things to watch out for.

Verify that any account you open with any bank is Federal Deposit Insurance Corporation insured. An FDIC-insured stamp essentially means that the federal government guarantees in any emergency (if the bank goes bankrupt, if the economy goes into a tailspin, if your money just disappears, etc.) to reimburse up to $100,000 of your money per account.

Think of this as free insurance for your bank account by the federal government. This practice was established in the early 1930s when the the Great Depression wiped out the savings of millions of Americans. Fortunately for us, most of the banks and credit unions in Blacksburg are FDIC insured. An online bank is where your vigilance is needed.

The next thing to observe is the interest your bank is paying you for your savings account (also called the savings rate). A savings rate is how much the bank pays you as an incentive to save. Most local banks (like Wachovia, SunTrust, Freedom First Credit Union, etc.) pay one to two percent in the best-case scenarios. This is abysmal, as other banks offer higher savings rates. Although our pocket money for the semester is generally not more than a few thousand dollars, learning to save in banks with a high savings rate is a good practice. One online bank that I found reliable, safe and easy to use with a high savings rate is ING Direct. Here, you get a competitive 4.5 percent savings rate with no minimum balance requirements or fees of any kind.

Therefore you can have your money earn five percent interest online and occasionally transfer money to a local checking account for your expenditures. Another good online bank with a 5.05 percent savings rate is Emigrant Direct. None of the local banks offers such a competitive rate.

Another great way to park unused or "dead" money and also earn a tidy return for risk free is via Certificate of Deposits. You can purchase CDs from banks from $500 to $100,000 for time periods ranging from three months to 20 years at competitive interest rates. When you purchase a CD for a specific amount and time period, you are promising the bank that you will leave that money untouched for the promised time period, for which the bank will reward you with some money.

For example, if you buy a $1,000 CD for six months with a 5.25 percent rate, at the end of the six month period the bank is obligated to return your $1,000 and reward you with an additional $26.25 for lending them the money for six months. Although this is not a stellar return on your $1,000 investment, it's better than nothing and most importantly it prevents you from spending that $1,000 on frivolous things you otherwise might have purchased. Think of investing in CDs as another form of saving but with a higher return.

Of course, you should purchase a CD only if you are certain that you won't need the money in the near future. An early withdrawal of funds will prompt the bank to charge you a fine. Again, local banks do offer CDs but their rates are not as competitive as some online banks. ING direct, E-loan and IndymacBank offer amazing rates for your CDs. For example, a $1,000 CD for a five-month period will earn you a handsome 5.45 percent on your investment if purchased from IndymacBank.

A good source for the prevailing rates for savings accounts, checking accounts, CDs, etc., is www.banx.com and www.bankrate.com. You can also check how much your local bank is offering and compare to see if there are other banks in your locality that can serve you better.
Next week: See how you can simplify managing money amongst friends, roommates and family using a versatile online resource.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/12/money_whizdom__is_your_bank_bullet-proof_

Money WhizDom: Learning the wise use of credit cards (CT Column 2)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Tuesday, September 4th, 2007.

America is a credit economy. We have mastered the art of borrowing money and then spending more than we borrowed.This is true with the government (we're running record trade and fiscal deficits right now) and also tends to be true with people who don't manage their money well.

Our weapons of mass destruction are called credit cards.Credit cards entice us into spending beyond our means. Having no credit card is a bad solution because this will stifle us from building a good credit history. Everyone knows that a good credit history is vital; it establishes the interest rate we pay on our loan when we buy that first car or home.Also, owning a credit card seems inevitable in this increasingly cashless economy.

Before divulging on good and bad uses of credit cards and the details of credit scores and credit history, understanding the concept of debt is important.When you borrow money, you are the borrower, and your credit card company is the lender. You pay back the money you borrowed with an interest, the fee you are obligated to pay for the money you borrowed, which you otherwise wouldn't have.Clearly, when you use a credit card you take on debt. In a broad sense there are primarily two forms of debt: good debt and bad debt.

In both cases you borrow money, but in the first case it's used to add value to you (debt to buy a home, to invest or to attend college) and in the second case (debt used to make frivolous purchases that lose value over time), it has detrimental effects.We as college students need to worry more about the second form of debt. We frequently use credit cards to make everyday purchases and don't really worry about buying a new home or car. Let's see how this problem can be tackled.The solution is pretty simple and straightforward.

You can apply for and own just one credit card with the minimum credit limit (your credit limit or line of credit is the maximum you can borrow/spend when you use your credit card). This way, you have the luxury of using it when you need to and you also build your credit history.

You don't need a credit card with a $5,000 line of credit and $150 minimum payments every month to build a good credit history. All you need is one credit card with a $500 line of credit and about $30 to $40 minimum payments. This option is easier; it builds your credit history and simultaneously prevents you from overspending.

When you pay your monthly bills, it is best to pay the full amount due and not rack up any debt. By paying your full dues you are virtually gaining access to free money, but if you extend paying the full amount and only pay the minimum amount required, you will be charged interest on the amount you owe.Credit card companies also charge interest on interest (compound interest), which is again dangerous if you don't pay your full amount every month.

Building your credit history as mentioned above is essential. Your credit score is derived from your credit history, in simple terms, your credit score is a report card of how you have handled debt historically.What are the main components of your credit score? Maximum weightage is given to the promptness of your payments, so making timely payments is essential.

The second most important aspect is something called the "current debt to limit ratio."Say your credit limit is $500 and your balance (the money you've borrowed) is $350, your ratio is 70 percent. It's ideal to keep this ratio at or below 50 percent. These two yardsticks (timely payments and debt-to-limit ratio) influence your credit score almost 65 percent.

It's a bad idea to apply for a new credit card if you don't need one. Doing this will reduce the average age of your account and will have harmful effects on your credit score.Also, one of the worst habits is to apply for those Gap, Circuit City or American Eagle in-store cards.

You may think you're being smart by getting a 10 percent discount, but owning these cards have damaging effects on your credit score.By doing this you are technically increasing the amount of credit you can get (more cards, so more debt) resulting in a lower credit score. The other factors just discussed contribute to the remaining 35 percent of your credit score.

There is no ideal credit card that one can own, but there are always good deals up for grabs. Two great places to explore this are www.cardweb.com and www.creditcardsearchengine.com. The second website also has a dedicated section for student credit cards.

Next week, I'll discuss things you should watch out for when you open a bank account, and how you can smartly invest unused money lying in the bank to earn a tidy and risk-free income.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/04/money_whizdom__learning_the_wise_use_of_credit_cards