College students get a bad rap when it comes to credit cards. But if used responsibly, college students can leverage credit cards to build a strong financial foundation for their post-college lives.
If used responsibly, taking out a credit card while you’re in school can really help you build your financial future. As long as you aren’t making charges you can’t afford to pay off – on time and in full – you have a lot to gain from regular credit card usage.
Keep reading for some insight into why college students need a credit card if they want to get a jump start on establishing a healthy financial life.
Build a credit history and score
It takes time to build your credit score. By taking out a credit card in college and using it responsibly for a few years, you can enter the next stage of your life able to secure better lending products and insurance rates. You can also rest easy knowing your credit score won’t get in the way of future job or apartment hunts.
Having a strong credit history and credit score can come in handy in your financial, personal and work life. Many people focus on building their credit score to improve their loan and credit card offerings and to secure lower interest rates; however, having a good credit score can affect a lot more than just borrowing options.
Let’s take a look at how your credit score can affect different areas of your life so you can better understand the importance of working toward a higher credit score.
- Borrowing money: Your credit score is affects your loan eligibility, borrowing amounts, interest rates and downpayment needs. The higher your credit score is, the easier it is to secure more favorable credit product offers.
- Job searching: Not every employer reviews applicants’ credit reports to see how responsible and reliable they are, but it’s common for any jobs that require managing money. If you have a low credit score, that may give an employer a reason to choose another candidate.
- Renting an apartment: Landlords like to see a history of potential renters making on-time payments. If you’re competing for an apartment and lack a credit history the landlord will be more likely to choose another applicant who can demonstrate they pay their bills on time.
- Applying for insurance: Insurance companies will also review your credit report to see how reliable and responsible you are – the lower your score, the higher your insurance rates will likely be.
Learn responsible credit habits
If a college student spends recklessly, they can get into a lot of financial trouble with their credit card. Before taking out a credit card, it’s important you understand the responsibility you are taking on.
As a rule, you shouldn’t be using credit cards to make purchases you can’t afford. Rather, you should plan to use your credit to make regular necessary purchases, like food and gas. Spending within your means and paying your card off in full each month builds good financial habits that will serve you for the rest of your life, as well as improve your credit score in short order.
“Financial planning for the most part boils down to being proactive as opposed to reactive,” said Peter Palion, certified financial planner and president of Master Plan Advisory. “If you’re proactive early on, a student can graduate with a credit score over… 760 or 780 without a whole lot of effort.”
An important credit card habit students can benefit from learning early on is making on-time payments, or better yet, paying off your credit card immediately after making a major purchase.
Treating a credit card as similar to using cash or a debit card by only making purchases you can afford to pay off right away is the first step to building a good credit routine. This will allow you to reap the rewards of credit cards (convenience and cardholder perks) without running into any downsides (late fees and interest charges).
Credit cards offer valuable protections
Credit cards can do some serious damage when misused, but when used properly they can actually provide consumers with some pretty valuable protections. Not only is shopping online – which all college students do – more secure when using a credit card instead of a debit card, but credit cards typically come with a suite of security offerings like:
- Zero fraud liability
- Encryption, chip-and-pin technology and fraud monitoring to help keep personal information safe
- Purchase warranties
- Travel insurance policies
When you’re first learning how to navigate life and finances, these protections can act as a nice safety net.
Have a backup in case of emergencies
Without parents nearby, a time may arise when a college student finds they need some extra help. Whether you need essential services on that spring break trip, have an unexpected trip to urgent care or find yourself experiencing car trouble, there may come a time when you need much more cash than you have on hand. In emergencies, a credit card can really come to the rescue.
Taking on a credit card is a big responsibility for a college student, but as long as you are aware of what you can and can’t afford to charge, you can benefit greatly by using one. Starting to build healthy financial habits – and your credit score – when you’re young can help set you up for post-college financial success.