Revolving Credit For Students: Pros and Cons

Revolving credit is a type of debt where you do not have set amounts of loans and payments each month. Instead, you have a maximum allowable credit line. Your purchase is deducted from that maximum each time you use the credit to determine your remaining credit. When you pay down the debt, your remaining credit goes back up. You have the option of paying down your debt each month. Or, you can "revolve" the credit by simply paying the interest charge and not the principal amount. The most common type of revolving credit is the credit card. It is common for many students to use credit cards as a form of manageable debt while they have little to no income.

Pros of Revolving Credit

Revolving credit is very flexible. Students may have high expenses one month such as new books at the beginning of a semester or a spring break trip. The next month, their expenses may be relatively low. Revolving credit will allow the student to choose how much to use of a credit line during any given period of time. Similarly, a student can choose how much debt to pay off at any given time. Many students do not work during the school year. They typically have a summer job, and some will make money during long breaks such as winter recess. Because of this, a student's ability to pay will fluctuate according to the season. Revolving credit allows a student to pay down debt during the times when he or she has the highest ability to do so. During the school year, a student can pay off interest rates but contribute only small amounts to paying off the principal.

Cons of Revolving Credit

If you are not careful with revolving credit, you will pay huge penalties and compounded interest rates. Carrying a balance from month to month will mean each charge you make becomes increasingly costly. Furthermore, most students do not have top marks on their credit scores. Many students do not have a long enough credit history to have a high credit score. Others are carrying large student-debt loans that will make them less appealing to lenders. If students are additionally carrying high credit card balances, they will be in the lowest credit score range. Often, students are not known to be the most fiscally responsible people. Due to the inconsistencies in schedule and income, it is common for students to miss payments or carry balances on revolving credit lines. Students must truly understand the consequences of mismanaging revolving credit to use a revolving line effectively.

Improve Your Credit Score - Free Consultation