5 Credit Lessons I Wish Were Taught in School

Credit is one of those many personal finance topics that should be taught in school.  Unfortunately, I had to learn about credit the hard way.

I’ll never forget when I went to purchase my first “grown up car”. I knew what car I wanted and saved up the down payment. I figured my credit score would be good since I usually paid my bills on time. Boy, was I wrong!  Ultimately, it related to not understanding how my credit score was calculated.  Thankfully, with a little dedication, I was able to raise my credit score over 150 points!

Check out these 5 credit lessons I wish were taught in school.

5 Credit Lessons I Wish were Taught in School

Credit Utilization

The credit utilization ratio is the amount of outstanding balances on all credit cards divided by the sum of each credit cards limit, expressed as a percentage.  Credit card issuers like to see this amount 35% or less.  For example, say you have 2 credit cards:

Credit Card 1:  Available Credit $5000, Balance $1000

Credit Card 2: Available Credit $2000, Balance $500

Credit Card 3: Available Credit $3000, Balance $1000

In that situation, you would have a total available credit of $10,000 and a total balance of $2,500.  Therefore, your credit utilization ratio would be 25%.

When I originally applied for the car loan, I only had one credit card with an available credit limit of $800 and it had a balance of $700!  Therefore, my credit utilization ratio was an enormous 87%.  In hindsight, if I know how my credit score was calculated I could have easily paid that credit card down to have an acceptable credit utilization ratio.

Related: Crash Course in your Credit Report

Credit Limit

Your credit limit is the total amount the bank or lender has extended to you to borrow.  Yes, borrow.  Even though a bank may provide you with a credit card of $1000, they don’t want you to use the total limit.  Using the total limit makes it look like you are overextended financially.

On the flip side, if you can handle credit responsibly, your credit card issuer could provide you with a credit card limit increase.  I love credit limit increases but I will say be very careful with them.  An increase in the credit limit gives you more to spend but that doesn’t mean you need to use it.  The reason I like credit limit increases is because it can give your credit utilization a burst.

For example:

Original Credit Card Limit: $1000  Credit Card Balance: $300  Utilization ratio: 30%

Increased Credit Card Limit $2000  Credit Card Balance $300  Utilization ratio: 15%

In the above example, a credit card limit increase would drastically lower the credit utilization ratio!

Decreasing Interest Rate

Did you know that you can reduce the interest rate on your credit card?  According to this USNews article, about 2/3rds of people that request a reduction in their interest rate are approved!  A reduction in your interest rate can save you hundreds if not thousands of money in interest.

The most important step in decreasing your interest rate is that you ask. Come prepared with research when you ask.  For example, I might say, “I have received multiple credit card offers with an APR of 10%.  I would love to stay with your organization but I just can’t justify the higher interest rate.  What can you do about it?”  Don’t be afraid to speak with a manager or supervisor to plead your case.

Related: 6 Bills you Need to Negotiate

Fraud Liability

Credit cards can be tricky – making sure you only charge things that you can afford and keeping your debt to credit ratio under 30%.  However, credit cards have one major perk that many debit cards do not carry and that is fraud liability.  Federal law guarantees that the card holder has zero liability.  Therefore, if you can use credit responsibly there is definitely a piece of mind knowing that if you are a victim of fraud it will be taken care.

Fees

When you receive a new credit card application, there is typically a laundry list of disclosures which include fees.  Do you read them?  Honestly, I did not read those fees at first.  Before you decide that a credit card is right for you, please make sure to make sure you read the fee disclosure. Some of those fees include:

  • Annual Fees
  • Late Payment Fees
  • Balance Transfer Fees
  • Foreign Transaction Fees
  • Over the Limit Fees
  • Returned Payment Fees
  • Cash Advance Fees (not that you should EVER take a cash advance)

Personally, I hate hate hate annual fees, but some of the best travel reward credit cards have hefty annual fees.  It is most important that you are aware of the fee prior to signing up.  Although I have heard some travel hacking geniuses manage to get certain fees waived, I wouldn’t count on having their same luck.

Bonus Lesson: Points

Warning: This is the bonus lesson.  Prior to travel hacking and truly taking advantage of credit card points, ensure that you pay your high-interest credit card balances down.  Points are great but the interest rate associated with a credit card balance is much more expensive than points.  In addition, to be approved for the best credit cards available make sure you have worked to raise your credit score.

If you have been following Financially Fit & Fab for some time, then you know besides educating the community about personal finance, I love to travel hack.  For example, that time when I used credit card points to pay for the majority of my flight to the Dominican Republic.  The bonus lesson that I wish I learned about credit is that credit card points are like free money!  Make sure you find a credit card that works for you!  For example, I look for credit cards with long introductory periods of no interest as well as no annual fee.  After those criteria are met, I look for the card that will supply me with the best points program!

 

Unfortunately, credit is one of the many personal finance topics that isn't taught it school. Check out these 5 credit lessons I wish were taught back then!

 

Are there any credit lessons that you wish were taught in school?  Tell us about some credit lessons that you had to learn the hard way!

 

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*Part of Financially Savvy Saturdays on brokeGIRLrich and, Disease Called Debt*

26 comments

  1. These were great tips! I wish someone had taight me about being financially responsible when I was younger–perhaps I could have avoided some of my student loan debt.

  2. Thank you so much for this posy! I am 25, have two vehicle loans and 4 credit cards. I am still trying to learn financial responsibility with credit cards and I have definitely made a few mistakes with fees and credit utilization.

  3. Great Tips! I really appreciate how you broke it down for those people like me who is just starting to learn about credit and finances!

  4. All of these would be wonderful topics for a personal finance class for high school students, before most have the chance to rack up credit card debt. Another point worth mentioning for the credit-repairing travel hacker, too many inquiries in a short amount of time can be harmful to your credit score as well.

  5. These are great tips. I agree, this should be taught in schools or even in the home when possible. I learned about decreasing my percentage rate and was too excited.

  6. How awesome are these tips! I wish there was some classes on credit in High school. It could’ve saved me a bunch of headache.

  7. I am literally just learning these things and battling my way out of debt. I wish I knew better.

  8. I agree. My cousin runs a financial conference for youth so it’s cool to see young people learning what they wouldn’t they’re not usually taught.

  9. Girl yes, I wish this was a mandatory High School class. You can’t graduate unless you’ve taken this class. We had Civics in middle school but we talked politics and played the stock market.

  10. These are great and a must read for those who don’t have a full grasp of their credit score and what goes into it. Realizing the importance of your credit score is big too. Many people don’t realize it can also be checked when you are trying to get a job or even a new apartment.

  11. This is huge. I don’t understand why we’re not weaving personal finance into the school curriculum from a very early age. It helps teach math, responsibility, self-control.

  12. I agree with all these tips. Instead of having a class focused on credit topics, we had classes like drafting. Credit is something that people will deal with a lot in their lives. Why not be taught about it at an eary age?

  13. Very helpful tips, I definitely would love if finance classes were incorporated into the school curriculum as so many adults make mistakes that could have been avoided had someone taught them early on. But it’s never to late!

  14. Credit utilization took me a while to understand. I was so confused after I applied for a few travel rewards credit cards a few years ago – I expected my score to go down a few points because of the inquiries and instead it went up about 20 points because I suddenly had so much more available credit.

  15. I agree that credit card rewards are like free money. Getting paid to spend money on things you were going to spend money on anyway? That sounds like a steal.

    One thing I would add is how important credit history is when getting a credit card. I have a combined 30k credit limit and I use maybe 1.5 – 2% of it, maximum, every month yet my credit score is less than 800. I think because I keep applying for credit cards often for the rewards program, I have a less than 800 credit score.

  16. My husband and I talk all the time about all the things we didn’t learn in school that we should have! I think credit and taxes are things we definitely should have learned more about.

    LiveLifeWell,
    Allison

  17. Conversations about money and finance excite me. Although my husband and I seem to have a good grasp of it, our friends and family do not. This is definitely good info you’re sharing.

  18. Those fees will really get you! I think they need to tell people this before they hit college campuses! I wonder if they are still asking you to sign your life away for a t-shirt during orientation…

  19. There should have been about two or three chapters on credit in econ 101. I really don’t understand how they can not teach you about credit when you receive credit card offers as early as the summer before your freshman year of college.

    You’re so right about the credit utilization ratio. I jacked mine completely up my freshman year of college and it’s just a wonder why the credit card companies continued to give me credit!

    Thankfully, mine is sitting at a pretty 1 percent right now:)

  20. I once had Debt from six years ago and it stopped me from buying a home
    my family had been making effort to move into. Imposters ripped me off my money.I came across some guys online after contacting them they were prompt, courteous, and genuinely. They fought hard for me, and thanks to them, we are closing on our new place! I can highly recommend them to anyone with any type of credit score related issues . Don’t know how they did it but you will thank me dozen

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