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Credit 101: How it Can Help You and Hurt You

Written by Madi Werynski

Credit cards don’t have to be scary.

Want to test your credit knowledge? Play Just for Funds Trivia and you could win $1,0004!

Speaking of credit, right now when you sign up for the CIBC Dividend® Visa* Card for Students, you can earn $25 cash when you make your first purchase1!

Plus, you can earn 2% cash back at eligible grocery stores and up to 1% on everyday purchases like books, movies, food, and more3. Consider the points you could rack up every time you’re forced to buy things like dish soap and paper towels!

It seems like a no brainer. But, what about those “dangers of debt” horror stories students are often bombarded with?

We don’t want bad credit to crush your dreams and haunt you for life. That’s why we’re here to teach you the hacks to maintaining a healthy credit history. That way, we can help you get the things you want like a loan, a house or a car! So, let’s look credit straight in the eye and find out how it can help us instead of hurt us.

Okay, what exactly is credit?

Credit is when a bank gives you money to use now based on the trust you’ll pay it back later. Think of the bank as your friend. If your friend lends you $10 and you pay them back when you said you would, they’ll likely lend you $10 again. If you don’t pay them back, next time you ask they may be more hesitant.  The same goes for credit. 

What is interest?

Interest is the money that a lender (like a bank) charges you for borrowing money. In most cases, credit cards will give you a “grace period” on purchases you make where no interest is charged on what you borrow.

So imagine your friend who lends you $10 says, “If you pay me back this month, you can pay me $10, but if you pay after the end of the month you’ll have to pay me $11.” So interest is the incremental money you pay if you hold a balance (meaning you don’t pay off your credit card every month).

On the flip side, when you have a chunk of money in a savings account, the bank pays YOU interest for keeping your money there so they can use it for investments and give people loans.

What’s the difference between credit history and credit score?

Your credit history is like a resume of all the financial choices you’ve made. It includes things like your payment history, how many credit cards you own, how much debt you have and how long you’ve been using credit. Your credit score – a number between 300 and 900 – is like a grade on your report card that shows how good you are at following the lender’s rules. It’s used to determine what kinds of loans and interest rates you’ll qualify for. The higher the score, the better.

So, why do you need good credit?

When it comes to applying for cell phone plans, getting car insurance and later on when it’s time for some big-ticket items to be purchased, it’s essential that you have some credit history established to prove you’re financially responsible. (You basically need to have proof you won’t ghost people when they give you money.) Your prospective employers and landlords can and will check credit ratings to make sure you make smart decisions.

Okay, so how do you start building good credit?

  • Pay on time – It’s important to make sure you pay your student loan, and credit card bills on time. Every time. Late payments can seriously damage your credit rating. And the longer you wait to pay, the more interest will accumulate and the more money you will owe.

 

  • Don’t spend money you don’t have – Got approved for a $5,000 limit credit card? It feels like you hit the jackpot and suddenly have free money in your pocket. Hold your horses, big spender. That’s just the maximum amount you can borrow, and you’ll have to pay it all back. When you make a purchase on your credit card, get into the habit of jumping online and transferring that amount from your bank account to bring your balance down. Overspending will just dig your debt hole deeper.

 

  • Keep your outstanding credit card balance low – Leave lots of space between your outstanding balance (what you owe) and credit limit (the maximum amount you can borrow). And never exceed your credit limit! To maximize your credit score-building ability, try to keep your spending between 30 and 40 percent of your monthly limit.

 

  • Avoid cash advances – Using a credit card for quick cash is expensive since interest is charged on the money from the day you borrow it (there’s no grace period as mentioned above). But do keep in mind that cash advances are available – and a handy way to get out of an emergency situation.

Start building credit with a credit card from CIBC:

Strangely enough, not having a credit card can affect you almost as much as having bad credit. A great way to start building your credit is to get yourself a credit card and start making regular purchases. Use it instead of your debit card to start racking up credit and potential sweet points and rewards, like cash back!

A great option for students is the CIBC Dividend Visa Card for Students. It can earn you 2% cash back at eligible grocery stores and up to 1% on everyday purchases like books, movies, food, and more. I mean, hey, we all need to eat and read things!

Plus, with any eligible CIBC youth or student product, you’ll also be eligible to receive a free digital SPC membership that you can use to save money on new threads, fitness, and food! In fact, students who use SPC save on average $200 a year2.

So, if you’re interested in earning points with the CIBC Dividend Visa Card for Students, and saving money on many everyday student essentials with the free SPC membership you’ll receive, you should sign up! If you do, you may be eligible to be automatically entered into Full Ride for a chance to win $35,000 to help pay your tuition◊◊.

Cash back. Discounts on the coolest swag. A chance to win $35,000 tuition. It’s a sweet deal.

 

† To be eligible for a free SPC membership, you must hold an eligible CIBC product at the time you register for the membership, which you must do through CIBC online or mobile banking. Eligible CIBC products include a CIBC Youth or Student bank account, Student credit card or Student line of credit. A complete list of eligible CIBC products can be found at cibc.com/spc. Joint account holders of eligible CIBC products are not eligible for membership. You must also be a legal resident of Canada who is fourteen (14) years of age or over, but under the age of thirty (30) years if the eligible CIBC product you use to qualify for the membership is a student line of credit. The membership will automatically renew and remain in effect for as long as you hold an eligible CIBC product. Trade-mark/registered trademark of Student Price Card Ltd.

1. You can qualify for this offer if you apply and are approved for a new CIBC Dividend® Visa* Card for Students between March 2, 2020 and July 5, 2020.

If you apply and are approved for a new CIBC Dividend® Visa* Card for Students, you will receive a one time $25 cash back on your first purchase made within the first 4 monthly statement periods.

Cash back is awarded at the end of the year as a credit on your December statement.

Offer applies to newly approved card accounts only; transfers from an existing CIBC credit card to a CIBC Dividend® Visa* Card are excluded. This offer is not transferable. This offer may be withdrawn or changed without prior notice at any time. This offer may be revoked if you appear to be manipulating or abusing it, or are engaged in any suspicious or fraudulent activity, as determined by CIBC in its sole discretion.

2. Source: https://spccard.ca/why-spc

3. Cash back is earned on a tiered basis on card purchases less returns and not on cash advances, interest, fees, balance transfers, payments or CIBC Convenience Cheques. Cash back is calculated as follows: on the first $6,000 in net annual card purchases excluding grocery on your account, the cash back earned is 0.5%; on amounts greater than $6,000 in net annual purchases excluding grocery the cash back earned is 1%. Earn 2% cash back on purchases (less returns) at merchants classified by the credit card network as grocery stores. All other purchases earn cash back at the regular tiered rate. The 2% cash back offer is only available on the first $6,000 in net annual card purchases at grocery merchants on your account; after that, net card purchases at grocery merchants will earn cash back at 1%. The $6,000 limit will reset to zero after the day your December statement is printed. Terms, conditions and eligible merchant categories may change without notice. Deductions of cash back for returns are made at the earn rate applicable at the time the return occurs. Credits for returns made on your account may result in a deduction of cash back at a higher earn rate, even though the return may relate to a purchase that earned cash back at a lower rate. The cash back is accumulated each month, beginning with the January Visa statement, and awarded at the end of the year as a credit on the December statement or, in limited circumstances, at such other time as may be permitted by CIBC. Credit card account must be open and in good standing at the time the cash back is awarded. Cash back will be credited to the primary cardholder’s account.

4. NO PURCHASE NECESSARY. Open January 16th, 2019 at 12:01 am. Eastern Time (“ET”) to February 15th, 2019 at 11:59:59p.m. ET to legal residents of Canada who are sixteen (16) years of age or older and are current students of an accredited Canadian university, college or secondary school. One (1) $1,000 prize available. Odds of winning depend on the number of eligible entries received. Math skill test required. Full Contest Rules available here.

◊◊ NO PURCHASE NECESSARY. Open January 1st, 2020 to December 31st, 2020 to legal residents of Canada who are sixteen (16) years of age or older and are current students of an accredited Canadian university, college or secondary school. One (1) Grand Prize available to be won consisting of: one (1) cheque for $8,750 made payable to the winner; one (1) 1-year GIC for $8,750 opened in the winner’s name; one (1) 2-year GIC for $8,750 opened in the winner’s name, and one (1) 3-year GIC for $8,750 opened in the winner’s name. Odds of winning depend on number of eligible entries received. Math skill testing question required. Full Contest Rules Règlements officiels d’inscription au Concours. 

* Trademark of Visa Int., used under license.

The CIBC logo is a registered trademark of CIBC, used under license. All other trademarks are owned by their respective owners.

CIBC Aventura Visa Card for Students

*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.