College is an exciting time for students. For most, it’s their first time living away from home. It may also represent their first taste of financial independence – including getting a first time credit card.
Many of our CFE members are families with college students. In fact, one of the questions we hear most often is this:
What should I know about credit cards for college students?
That’s a good question to ask, especially if you’re applying for your first credit card. It’s easy to make less-than-perfect choices about your credit if you don’t have the right information. Here’s what you need to know before you apply.
The Benefits of Having a Credit Card
There are some significant benefits to having a credit card. The biggest is that having a credit card and using it responsibly helps to build your credit and earn you a favorable credit score. Having a good credit score is essential if you want to be able to buy a new car or qualify for a mortgage.
Here are some of the other benefits of having a credit card:
- Flexible spending and the ability to handle emergencies even if you don’t have cash on hand
- Earning points, cash back, or mileage when you use your card
You should shop around to see if you can find a card with a rewards program. It can be a good way pay for travel or accrue a little extra spending money.
Interest and Fees
Every credit card has an interest rate that you’ll be required to pay if you don’t pay the full balance of your card every month. Credit cards for college students often come with high interest rates, so it’s important to read the fine print on the application before you apply.
Some credit cards also charge fees. For example, you may sometimes pay an annual fee to be a cardholder. Less commonly, a card issuer may charge a monthly fee. In addition to that, there may be hidden fees. You should always read all the material a card issuer sends to you before you apply for a card. It’s your job to understand the fees and rates.
College students may not have a steady stream of income. If you have a part-time job, you should try to sync your credit card payment due date with the times of month you get paid. For example, if you get paid on the 1st and 15th of the month, try to make your credit card due date a few days after you get paid. That way, you’ll have time to mail a check – or, if you prefer, a few days to make a payment online.
Credit card issuers are not legally allowed to change the due date of your card at will. They also cannot put a due date on the bill that’s fewer than 21 days from the day they mail it. Remember that you can ask them to change the due date to a date that works for you – and if a company resists a reasonable request, you should keep looking.
The Difference Between Secured and Unsecured Credit Cards
Sometimes, financial institutions are reluctant to offer credit cards to college students. One alternative that offers them some protection is to issue a secured credit card.
A secured credit card is a card where the balance is secured by a deposit from the cardholder. Typically, the deposit is equivalent to the card’s limit, so if you made a $300 deposit, you would have a $300 limit on the card. By contrast, an unsecured card requires no deposit.
How to Use a Credit Card Responsibly
Arguably the most important thing you need to know before you apply for your first credit card is how to use a credit card responsibly. It’s very easy for first-time cardholders to get into debt because they don’t understand the risks of having a credit card.
Here are some tips to help you be a responsible cardholder and build your credit:
- Use the credit card only to buy what you can afford
- Put the due date for your credit card bill in your calendar
- Plan to pay the entire balance each month if you can
- Make sure to have your card information stored someplace safe, so if you lose your card you can report it immediately
- If you have credit card debt, come up with a plan to pay it down as quickly as possible
Following these tips will help you improve your credit score.
Applying for your first credit card is a milestone. Knowing about the risks, responsibilities, and benefits of having a credit card will ensure that you use it properly and build a solid credit history for the future.
To learn about CFE’s credit cards for college students, please click here.