Should You Get a Student Credit Card?
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- A student credit card can help you start establishing credit while you're in college.
- Only take out a student credit card if you're confident you can make monthly payments.
- Start with low credit limits, read the fine print, and be wary of high interest rates.
Have you thought about getting a student credit card? Maybe you'd like to earn some extra cash back or travel rewards points, or build your credit. Or maybe you're nervous about credit cards because you've heard they can cause a lot of financial headaches.
The truth is that student credit cards can be a double-edged sword. If you use them the right way, they can help give you a financial leg up over your peers by the time you graduate. But if you use them incorrectly, they can end up hurting you in the long run.
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Does this mean you should avoid them? Not entirely. But it's important to know how they work, the right way to use them, and whether you might be a good candidate for one. That way, you can make an informed decision for yourself about whether or not you should get a student credit card.
Before acquiring your own credit card, you should also consider becoming an "authorized user" on a parent's or guardian's account. This allows you to build a credit history without the risks of starting your own account, while also benefiting from your parent's/guardian's good credit — if they have it.
Pros of Getting a Student Credit Card
There's a reason credit cards are so popular. Below are some of their major advantages.
You Can Earn Rewards
It's true that many student credit cards offer you big rewards in the form of cash back from your purchases or free travel rewards. These perks can help you take trips and buy things you might not otherwise be able to afford.
For example, a credit card that offers 2% cash back essentially gives you a coupon for 2% off everything you buy.
You'll Build Credit
Having a good credit score can be important if you ever want to rent an apartment, open a utilities account, get a cell phone plan, or take out a loan for a house or car. It can affect whether you're approved for a loan and how much interest you'll pay.
An excellent credit score can save you thousands of dollars in interest payments over the course of a 30-year mortgage. Potential employers may even check your credit — in some cases, you might be denied a job if your credit score isn't high enough.
Getting a student credit card now (and using it wisely) can help you build your credit score so that it's in good shape by the time you graduate. That's because you'll be adding positive information (e.g., on-time payments) to your credit report, which can increase your credit score.
You Get More Consumer Protections
One of the things people don't realize about credit cards is that they can actually protect you in many ways that debit cards, checkbooks, and cash cannot.
"If someone steals your debit card info, they can drain your bank account in a heartbeat and there's nothing you can do about it," said Tara Unverzagt, a certified financial planner with South Bay Financial Partners. "[But] if someone steals your credit card info and uses it, you can have the charges removed."
Unverzagt also pointed out that it's easier to get your money back if you buy something but the merchant charges you the wrong amount. "You can call your credit card company and they'll fix it. With a debit card, once it's gone, it's gone," she said.
Cons of Getting a Student Credit Card
Although student credit cards may offer some big advantages, it's important to note that these are easily wiped out if you don't manage your account correctly. Below are some potential consequences if that happens.
You Can Get Trapped in Debt
Student credit cards don't generally come with big lines of credit, like someone with a six-figure salary might get. Still, since you're a student, your income isn't necessarily very high, and it might not take much for you to get stuck in a cycle of debt.
It's easy to rack up a balance on your credit card and only make the minimum payment. You might even think you're doing well by making that minimum payment on time each month. However, if that's all you pay, it could take years to get out of debt, and you'll pay a significant amount of interest charges by the time your debt is settled.
You Can Ruin Your Credit Score
Aside from getting trapped in debt, there are a couple of ways you could end up ruining your credit score with a student credit card. The biggest pitfall is if you don't make your payments on time.
Just one late payment can make your credit score tank — the later the payment, the lower your credit score will drop. Even worse, late payments stay on your credit report and depress your score for a full seven years.
Another big credit score factor is how much debt you have relative to your credit line. This is known as your "credit utilization ratio." If you're using a big chunk of your available balance, your credit score will likely drop.
How to Use a Student Credit Card: 5 Key Tips
Getting a student credit card while in college can be highly beneficial for students with a job, or some level of income. It can help students learn how to manage credit responsibly, and get a head start on building credit. At the same time, it's important to know how to use a student credit card responsibly.
Fortunately, the principles of good credit card use are fairly simple. They may not be easy to follow because you need to have the discipline to adhere to them, but the rules aren't exactly rocket science.
1. Look for Low Interest Rates and Credit Unions
Credit unions generally offer lower interest rates on credit cards, which can be a huge advantage. However, students may find it difficult to qualify without a job. In this case, they may need to be added as an authorized user on a parent's or guardian's account.
Being an authorized user effectively allows students to piggyback on their parents'/guardians' credit history, which gives them a much-needed boost when it comes to establishing credit and starting their own account.
2. Pay Off Your Credit Card in Full Each Month
The first rule of using any credit card is to always pay it off — in full and on time — every single month. If you follow this one rule, you'll be OK.
"I often advise people to start by using the [credit] card and immediately going on the app and paying the balance of what they just purchased," said Unverzagt. "That way they know they have 'money in the bank' to pay it."
If you get comfortable with carrying a balance from month to month, you risk establishing bad financial habits. This could come back to bite you in the future, especially once your credit limit increases after you get your first job after graduation. This is how people end up in debt.
You can still get all the benefits of using credit cards — rewards, consumer protections, and building credit — without carrying a balance.
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3. Create a Budget
Worried about overspending and not being able to pay off your balance in full each month? There's a simple solution to that, and it'll help you in many other ways as well.
If you create a budget, you won't need to worry about overspending because you'll have a plan for each dollar you earn. Even if you don't have a credit card, it's a good idea to get into the habit of budgeting.
4. Pay Your Bills With Autopay
Another strategy is to set up some of your smaller recurring bills on autopay with your credit card. For example, if you have a subscription to Spotify or Netflix, you can set these up to charge your credit card automatically each month.
You should also set up another autopay — this time from your bank to your credit card. Doing this gives you a more hands-off approach so that you don't need to worry about missing your credit card payment each month. That said, remember to occasionally check the charges, just in case they've increased during the month.
5. Learn How to Build Credit Responsibly
Getting a student credit card can be one of the best ways to build your credit. For example, unlike student loans, if you manage your credit card right by paying it off in full each month, you won't ever have to pay any interest. It's a free way to build your credit.
But it's not the only way to improve your credit score, and you should learn about how student credit cards fit in with the overall credit world. Spend time studying what factors affect your FICO score and how you can build credit further. Visit the Consumer Financial Protection Bureau website to learn more.
The Bottom Line About Student Credit Cards
Before considering your own credit card account, make sure you're already making on-time payments with your bills and utilities, as missing payments can affect your credit regardless of whether you have a credit card.
Next, consider becoming an authorized user on a parent's or guardian's bank account. This is a great way to establish a credit history. Being an authorized user also allows you to benefit from the lower interest rates and favorable terms of credit unions as compared to those of commercial banks.
If you've done all that and still want to open your own account, a student credit card may be a smart option. "College students should get credit cards. There is no better way to start your credit history," said Unverzagt. "And it's far easier to get your first card as a college student than after you graduate."
Nevertheless, Unverzagt cautions against some learners getting student credit cards. If you know you won't be able to manage the demands of paying off your credit card each month, or if you think you'll be tempted to spend more than you can afford, it's better to wait to get one.
But for those who are ready now, getting a student credit card — provided you use it responsibly — can help you take a big step forward financially.
DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.
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