Best Credit Card Tips for Students
Most traditional students are in a unique position. They have not yet established a credit history, so it may be difficult for them to find a credit card; however, they also do not have any negative credit issues working against them.
Since many students are working with a blank credit slate, making the right decisions now can help them establish a positive credit history, resulting in low interest rates. Because it is so important to establish good credit, we have compiled a number of tips for students considering a credit card.
Tip #1: Don’t Apply for the First Card You See
Many credit card companies target their marketing efforts toward students, but students should not necessarily apply for the first credit card offered to them. While they will have more limited options than someone who has a long, positive credit history, there are still a number of products available for students with limited or no credit.
Before applying for a credit card, students should research all the options available to them. Then, they should choose the card with the most attractive interest rates, fees and perks, such as rewards, free credit monitoring or a great mobile app.
Tip #2: Only Charge What You Can Afford
One of the most common mistakes students make with their credit is using their new card to make purchases they cannot afford. It is very important to use your credit card to buy items for which you have budgeted, and then pay the balance in full each month.
Students should pay their balance in full for a couple reasons. Since students have limited credit histories, the interest rates on their credit card will be higher than someone who has excellent credit. Interest rates can be in the high twenties. Thus, if a student carries a balance every month, they will be accruing massive interest fees.
Additionally, to determine a credit score, the credit bureaus calculate your credit utilization, the amount of debt one is carrying compared to the amount of credit available to them. If a student has a credit card with a limit of $750, and they have charged $700, they are using most of their available credit. Instead of building a high credit score, they are beginning to build a negative credit history.
Tip #3: Stick to One Card
Once someone has established a long and positive credit history, there are a variety of reasons they may choose to have more than one card. However, when you are establishing your credit, it is best to keep and use one student credit card. This will make it more difficult to overspend, and make it more likely to pay your credit card on time each month.
Tip #4: Avoid Expensive Fees
If you read your credit card terms and conditions, you will see your new credit card may carry a number of expensive fees, including over-the-limit and cash advance fees. Students should therefore carefully monitor their credit card spending to not go over their available limit. It is also never wise to use a credit card for a cash advance. In addition to fees, cash advances often carry an APR higher than the normal APR for purchases, which makes it an expensive way to borrow money.
Tip #5: Never Loan Someone Your Credit Card
Finally, students should never loan their card to friends or family members. The cardholder is responsible for any charges a friend might make. Thus, if your sister borrows your card to buy groceries, but then decides to buy an expensive sweater, you cannot dispute the charge since you gave her permission to use the card. Additionally, if the card is lost or stolen while in your friend’s possession, you may not be able to dispute fraudulent purchases, as the credit card company could argue you did not do enough to ensure the safety of your card.
If students follow these simple tips, they will help build a strong credit history and enjoy relatively low interest rates on their credit cards.