It’s not cheap to be a college student. Books, tuition, and simple living expenses all require ample resources. A credit card can be a fantastic way to pay for many of these costs. However, if students are new to credit or struggle with spending, the seeming freedom may be a mirage.
Following these credit card tips for college students can help students manage their money without accruing debt.
Credit card tips for college students
1) Start with a budget
Budgeting may seem like something you should wait to do until you are established in a career. That’s not necessarily the case; you can live on a simple budget on campus. Think of a budget as a plan for your money that aligns with your goals. Credit card usage can play an integral part in that plan.
According to Geri Hopkins, chief operations officer at Skyla Credit Union, a budget “also encourages mindful spending and prioritizing needs over wants, reducing the temptation to use a credit card for unnecessary purchases.” Thankfully, there are free or cheap budgeting apps you can use to manage your spending such as Mint and Rocket Money.
2) Don’t overspend to earn rewards
You may see credit cards that promote earning rewards. Rewards range from cash back to points for travel. It’s easy to get caught in the trap of spending merely to earn rewards.
When spending, keep your budget in mind. Ask yourself questions like “how does this purchase align with my goals?” or “do I really need this item?” If you can’t answer the question(s) or the answer is no, it’s likely wise to avoid the purchase. Earning rewards is enticing, but it’s not worth going into debt.
➤ LEARN MORE:Guide to credit card rewards: Points, miles, vs. cash back
3) Pay your balance in full each month
When you open a credit card, you will see something called your credit limit. Think of this as the most you can spend. However, that doesn’t mean you should spend that much.
Instead, spend only what you know you can pay back every month. You may even want to set a credit card spending limit for yourself. It’s also ideal that you never spend more than 30% of your available credit limit, as doing so can ding your credit score.
Finally, when you receive the monthly bill, pay it off in full. Timely, full payments help grow your credit and avoid unnecessary interest charges.
4) Know how credit works
Building credit is a key component of credit card advice for college students. Wise use of your card is an excellent way to establish a good credit history. A good credit score shows banks you’re responsible and can result in better interest rates in the future, saving you money.
Hopkins notes, “Starting early allows students to build a positive credit history with a consistent payment record, which can make a significant difference when they need to borrow for bigger purchases, like a car or home, after graduation.”
5) Understand the impact of minimum payments
You will see a minimum payment field on your credit card statement. It’s fine to only pay that amount, but you must know the associated risks.
Foremost, it doesn’t repay most of the principal. The remaining balance is there to earn interest, making it more difficult to repay the following month. If it snowballs, the debt can become challenging to repay on a limited income. Monitoring your spending is the best way to avoid this problem as you learn how to responsibly use a credit card.
6) Avoid getting multiple cards
You may be surprised to receive offers for additional cards after getting your first one. New offers may extend tempting possibilities, but it’s best to stick with one card as you begin.
According to R.J. Weiss, a certified financial planner and the founder of the personal finance site, The Ways to Wealth, “Students are just gaining experience managing their expenses, and if they slip and overspend on multiple cards, it will come back to haunt them later on.”
Worse yet, applying for multiple cards in a short span can negatively impact your credit. Instead, opt for one card and use it wisely as you begin.
➤ LEARN MORE:What hurts your credit score?
7) Know that not every credit card is equal
It can be challenging to know how to choose a credit card for college students. Many cards come with various fees. Ranging from annual fees to cash advance fees, they represent an easy way for issuing banks to make money. Moreover, the CFPB reports that student banking products are often rife with fees.
It’s best to select a credit card with no annual fees, which you may be able to find from a well-known bank. Weiss notes, the card “should also be from a major bank, as they offer better options for transitioning to other cards that might make more sense in the future.”
➤ SEE MORE:Best student credit cards
Understanding credit scores: How college students can build credit
Although imperfect, having a good credit score is essential as you progress as a student and in post-graduate life. Fortunately, the process of building credit as a college student is straightforward.
Here’s how to put your best foot forward:
- Limit your cards: More isn’t necessarily better. Multiple cards may tempt you to overspend, and the associated indebtedness can harm your credit score.
- Only buy what you’ve budgeted for: Remember your goals when spending. If you don’t know where the money will come from, avoid the purchase. Rinsing and repeating, even in small amounts, can benefit your credit.
- Pay in full, on time: It’s best to pay your bill on time each month. Late payments accrue fees, and minimum payments add interest. If done regularly, your credit can suffer.
➤ LEARN MORE:How to build credit as a college student
Common credit card mistakes college students should avoid
If you’re wondering should I get a credit card in college, you may be overwhelmed with the responsibility. Mistakes can be costly, especially in the long term.
These are mistakes to avoid if at all possible:
- Taking cash advances: Cash advances aren’t free money. Moreover, many credit cards charge exorbitant fees for advances.
- Exceeding your credit limit: This shows the bank you’re more of a risk and often results in added fees.
- Carrying a balance: A common myth is that you need to carry a balance to build credit. That is false. You incur interest, making it more difficult to repay the balance.
- Choosing the wrong type of card: There are many choices for credit cards. Many have high fees, but some offer rewards for specific spending. The best credit cards for college students mitigate the former and may focus on the latter.
- Avoiding credit cards: Yes, credit cards can be risky, but avoiding them carries risk, too. If you ever plan to buy a house or car or get certain jobs, you hinder yourself without building credit.
Frequently asked questions about credit cards for college students
Credit cards are a serious matter, and even more so for someone who’s learning how to use them. If you’re new to getting a card, here are some important considerations to keep in mind.
Why college students should consider a credit card
Having a healthy credit score is essential when you graduate. Banks will trust you more, allowing you to get better rates on a mortgage or car loan. Credit cards are also a fantastic tool to help students learn how to manage their finances.
What’s the best type of credit card for a college student?
A no-annual fee credit card is typically best for students. Some cards are customized for students, with minimal fees and lower maximum balances. If a card has a lot of needless fees, it may be wise to avoid it.
Is it safe for college students to have credit cards?
Credit cards are a powerful tool, even for college students, but that power may not always be good. If having a card tempts you to overspend, you may incur substantial debt. However, used wisely, credit cards can help grow your credit and teach you to spend wisely.
How many credit cards should I have as a college student?
It’s best to have only one credit card as a college student. More cards can temporarily hurt your credit due to more inquiries but also give you more spending power. The risk of additional debt isn’t worth the minimal benefit.
The bottom line
Credit cards for college students can be a helpful tool in a person’s financial journey. Managed wisely, cards can help students build their credit and manage their spending. However, when treated like play money, credit cards can have a ruinous impact. Approach credit cards smartly and they can help you in numerous ways.
