Should I Get a Credit Card in College?
Having a credit card may save you money by keeping your bank accounts safe from debit card theft, allowing you to build up a stellar credit score, offering cashback and other fun rewards, and letting you take your time paying off larger purchases. However, many college students find themselves quickly accumulating debt or taking on expenses they otherwise may not have incurred without a credit card.
But that’s not you.
You know that even though a credit card can help you fill in the gaps of a monthly budget, it is still important to manage your expenses and ensure any debt you take on is reasonable. This means you can pay off your credit card balance without accumulating a large amount of interest, which can otherwise quickly get out of hand and ruin your credit score. As you know, a poor credit score can damage many aspects of your life from housing options to employment opportunities to higher interest rates in the future.
With all of this in mind, you may be wondering what a credit score even is, what a reasonable budget may actually be in relation to your cash flow, and what things you must look for when choosing a credit card. Let’s break it down.
Understanding the parts of a credit card
Every year, you are an entitled to review your credit score through one of the main three credit bureaus, which are:
Your credit score ranges from about 250 to 900 and is calculated for each individual based on a diversity of factors. A positive score generally is viewed as one over 700. When calculating your credit, the credit bureaus consider the following factors:
- your total amount of debt
- your history of payment
- whether or not you pay on time or late
- how long you have had a credit card
- any new credit you’ve acquired
- if you have a mix of credit sources
By opening a small credit card account early on in your life, you can positively increase the length of your credit history. By making small monthly payments on time and staying in the bounds of your budget, you can start to build up a good credit score.
What is interest?
Interest is a set percentage determined by each credit card company. In the paperwork for your credit card, they’ll refer to it as an annual percentage rate (or APR). This interest rate is added to your credit card balance when you carry over debt into the subsequent month. So, if you have a 10% APR and you spend $1,000, the credit card company would charge you $100 (spread out over the year).
Like we talked about earlier, beware credit card companies that might target college students with higher interest rates and, instead, look for other companies that offer specific packages just for students. Often, these deals include no interest rate and lower credit limits to help keep spending in check.
Responsible credit card ownership
One way to make sure signing up for a credit card during college is a positive step toward the future rather than a destructive one is to set yourself up for success with a monthly budget. What this usually looks like is determining what your cash flow will be each month and then setting money aside for your necessary expenses: rent, food, bills. Once you make sure you have enough to cover each category, you may also set a target number for recreational spending that might include new clothes, entertainment, or going out to dinner with friends.
Students need to educate themselves and understand that their spending (and paying) habits can have serious consequences for their credit scores. Here are just a few things students should consider before accepting any credit card offers:
1. Be selective with the credit card company
Seek out a plan meant for college students or that has a low interest rate, no annual fee(s), and smaller credit limit. Both of these factors will set you up for success as a new credit card owner so you can keep your focus on enjoying college and giving it your all.
2. Stay Within the Limit
Making sure your purchases stay within your predetermined range will allow you to safely put these expenses on your credit card so you know you can pay them off at the end of the month without being charged the interest. If you go over your budget and end up carrying a balance on your credit card into the next month, you can start to factor in paying off this amount into the next month’s budget, and so on.
3. Pay on Time
Students should not expect their parents to pay their balance each month. Knowing when the bill is due, and paying it in full, will help students establish a healthy credit score and make them responsible for their spending habits.
Parents can help students by discussing expectations and setting spending limits prior to handing over their credit cards for use. Students should be aware of any fees associated with going over the limit or paying late, and the consequences of those actions. With a little education and planning, students can graduate without the extra burden of credit card debt, too.