The way you deal with finances as a college student and the habits you develop regarding money will affect you far beyond your college days. So when you start getting offers from credit card companies, it’s important to know how to pick the right one for you. Here are our 6 best student credit card tips to help you make good financial decisions.
1. Sign up for Only One Credit Card in College
You will literally be bombarded with mailers, emails, and texts offering you deals to sign up for credit cards. Some credit card companies may even offer specials through on-campus organizations, and during freshman orientation.
Companies don’t do this to help you out, or to get you a good deal.
They do this to get your business early on, when you’re prone to taking on debt, and to keep you using their brand in the future. Even though you will be invited to sign up for several credit cards—don’t.
A great strategy, especially starting out, is to have just one credit card that you can use for whatever credit purchases you need to make. So make sure you sign up for a major credit card like, Mastercard, Visa, or Discover, which are accepted almost anywhere and often come with great benefits.
Having just one credit card makes things easy: one bill, one statement, and if your wallet becomes lost or stolen, you have only one credit card company to contact. Keep it simple with one card.
Why? Applying for too many cards may lower your score.
At this point, you don’t have much of a credit history, so if all the credit bureaus have to try to calculate a score for you is the amount of times your credit has been pulled, this is going to lower your already-fragile, developing credit score.
While having too many potential creditors pull credit within a short period of time can lower anyone’s score, it’s especially detrimental to a newly evolving score simply because there aren’t enough other items to add into the credit score calculation.
2. Build Your Credit History Early On
Time and again you’ll hear people telling you to pay with cash, not credit. If you understand how money works, and that every swipe of a credit card is a micro-loan, keep their advice in mind, but don’t be afraid of credit.
Opening a credit card as a college student is good for your credit score (as long as you are making your payments on time).
To build a good credit history, you must have some creditors reporting on your payment history each month. You don’t have to charge a lot, just enough to receive a bill with a balance.
Why? Without a credit history, you can’t get credit later on.
You’ll want to start building a good credit history early on if you ever hope to make larger purchases in the future, or even rent an apartment now. Even if you’re 30 years old with a good job, you’ll be hard-pressed to get credit without a credit file.
Tip: Use your credit card for monthly necessities, such as gas, books, or the occasional pizza, then pay it off each month. Only charge what you can pay for with cash–the key here is to use credit as a tool, not a means.
3. Compare Credit Card Benefits before Signing Up
You may want to sign up for the first card you see, but not all credit cards are created equal. Also, you don’t want to be stuck with a credit card that doesn’t pay off. Even though the Credit CARD Act of 2009 outlines specific parameters that all credit card companies must follow, the benefits of each card vary.
Here are some of the benefits that many student credit cards offer:
- Cash back on purchases
- No annual fee
- Online or phone bill pay
- Free FICO score on monthly statement
Our student credit card comparison tool can help you decide on which card is best for you.
4. Don’t Fall for “Special Offers” from Companies
Most of the marketing that credit card companies use is focused on getting young folks to sign up. From there, they just assume that if you have the credit card, you will use it—and they will make money.
Sometimes, introductory rates aren’t enough; there are often freebies involved to entice you to sign up for that particular credit card. What college student doesn’t want a free t-shirt or a cool lanyard? What young shopper doesn’t want 15% off their purchase if they sign up for a store card? Don’t be fooled. Unless it is a card you need, with benefits that you are looking for, don’t sign up.
Why? Because it’s just a ploy to get your business.
Just like making sure you sign up for a card with good benefits, falling for “special offers” is a good way to get played.
Sure, your friends may be signing up for a credit card just to get a university sweatshirt, but they’re probably not looking at the specifics. What’s the interest rate look like? Are there annual fees? Do you get any benefits, like cash back rewards or credit monitoring?
Companies don’t spare the chance to bury the details in the fine print, and if you aren’t careful, you might just end up paying for that “free” t-shirt with fees and high interest.
5. Set up Automatic Bill Pay to Protect Your Credit
Once you have chosen the credit card you want, and can afford it, set your account up for automatic bill pay. Set up automatic pay from a checking account that you know will have enough money in it each month to avoid late fees.
Why? Because on-time payments influence your credit score greatly.
Between address changes, busy class schedules, and going home during breaks, a missed credit card bill is easy to get “lost in the shuffle.” And unlike people with a long history of on-time payments, any late payments you make will put a big dent in your credit score.
6. Don’t Run up Debt Just Because Your Credit Line Increased
Sounds obvious, right? Well, it is. But it is definitely easy to pull out the plastic to pay for incidentals that add up to more than you might expect in a month. It’s also easy to get into the habit of just putting this or that on a credit card, just because you can.
A credit line increase might sound heavenly, especially if you’re trying to upgrade your smartphone, or buy a dirt cheap car to get around. An increase can also influence your credit score for the better, because your utilization rate, or the amount of available credit your have vs. your debt, is lower. But more credit isn’t always a blessing.
Why? Because more potential credit means more potential debt.
Creditors can see how much you spend each month, and how you make payments on your accounts. For many “grownups,” as soon as they get a credit card paid down or off completely, credit card companies will up their credit limit. After all, racking up another $1000 in debt doesn’t sound so bad if your credit limit is suddenly $2500.
“A credit increase gives issuers the opportunity to make a good impression. It makes consumers feel good about themselves.” – Bankrate
One way to make sure this doesn’t happen is to save your receipts. Keep them all together: in an envelope, file folder, or saved in an app like OneReceipt. This makes it easy to check your bill for inaccuracies, and every time you add a receipt to it, you’ll know exactly what you spend money on.
Another way to keep your credit line in check, and to protect yourself from depending on credit, is to refuse the credit line increase. Only do this if you don’t trust yourself with credit, or if you might be tempted to use it.
Use Credit Responsibly, or Not at All
You should really only consider getting a credit card if you can trust yourself with it. If you have trouble holding on to the cash in your pocket, adding the ease of purchasing with plastic to your wallet won’t make you better with money.
Get a prepaid credit card that reports your payments to credit reporting agencies, without the risk. Not all prepaid cards report to agencies, so make sure you pick the right one. If you do get a credit card, commit to paying it off each month. While a student credit card is a great way to start building a credit history, it can have long term detrimental effects if you don’t take the responsibility seriously.
Gina Young is an accomplished finance writer who has written for publications including Examiner.com, Lexington Law, Talk Markets, CreditRepair.com as well as her own blog (Money Savvy Living), giving budgeting and frugal living advice. With a bachelor’s degree in Accounting and Finance from Ashland University and a MBA from Indiana Wesleyan University, Young has impressive credentials in many aspects of investing, retirement planning, and personal finance.