If you follow these guidelines, credit cards can serve you well and help you build credit for the future.
Credit cards are excellent tools that can help you make safe and easy transactions, and student cards are designed specifically for getting started. Many come with sweet perks and rewards programs too. So if you handle them the right way, they can put money in your pocket.
Remember, though, that you are borrowing money with every charge you make, and the way you manage the card will be graded. The card issuer will regularly send your account’s activity to the three national credit bureaus, and that data will be turned into credit scores.
As a college student and first-time cardholder, you have the perfect opportunity to create a credit history worthy of an A. Here’s how.
How to use student credit cards
1. Pre-plan ongoing charges
It’s tempting to whip out your card for anything you want or need. Instead, think about what you want to charge in advance. In most cases you’ll want to repay the entire bill when it’s due. For example, you may decide to only use the card for gas or groceries, which will run you $300 per month, an amount that works for your budget. But by paying the debt in full within the grace period (21 to 30 days), you won’t have to deal with any interest being charged to your balance.
2. Budget for special occasions
Of course, you can also use your credit card to buy things that come up unexpectedly, such as concert tickets or items that are too expensive to pay for with cash on hand, like a new laptop. In such circumstances, treat the balance as you would a very short-term loan. Suspend charging and break up the debt into a few monthly installments. So, if you charge $800 on a card with an APR of 23% and send $277, you’d be in the clear in three months. The total interest will be $31. That’s the cost of convenience.
3. Mind the due date
Paying on time is important for a couple reasons. One is that issuers can charge a late fee of $28 the first time you’re late, even by a day, but if you’re delinquent a second time within six months that fee can rise to $39. The other reason to pay on time is to avoid credit damage. If you skip an entire billing cycle, a delinquency will be noted on your credit report for seven years. Payment history is the weightiest credit scoring factor, and even one late payment can negatively impact your credit scores. To avoid this problem entirely, consider enrolling in automatic bill pay so you never miss a due date.
4. Respect your limit
Every credit card has a specific credit line, which is the total amount you can charge. Many student cards have low limits, especially in the beginning. To ensure a healthy credit utilization ratio, which is very important to a credit score, try not to use more than 30% of the available credit line at any given time. For example, if your card’s limit is $1,000, your personal limit should be $300. Credit scoring companies will input the information found on your credit reports once a month to create credit scores. If the balance is too high – even if you intend to pay off the bill in full by the due date – your scores may decline.
5. App your account
Every month, the issuer will send you a detailed account statement with all your charges, as well as the final amount you owe. But by the time you get it, the charges may be more than you can afford to pay off entirely. All major credit card issuers have apps you can download for free, so use them to conduct daily or weekly checkups on your charges. This way, you will never be surprised by an unexpected high balance.
6. Keep your card to yourself
Never share your credit card with another person. As the account owner, you are totally responsible for its management. If you gave somebody permission to make charges with your card, you would be liable for the resulting payments and debt. Also make sure all information about your account is inaccessible to others. If you get paper statements mailed to you, shred them as soon as you’re done with them. Do not use unsecured public Wi-Fi at cafes, on campus, or anywhere else to conduct your banking business, since they can be accessed by savvy opportunists looking to hack your account.
7. Just say no to cash advances
Credit cards give you the ability to withdraw money from your credit line, but they are best used for paying for products or services. If you take out a cash advance, the issuer will charge a fee of between 2% and 5% of the amount you withdraw and interest will accrue immediately. In many cases, the APR is higher for cash advances than it is for purchases too, making it an extremely expensive way to buy things.
8. Beware of happy places
Bars, restaurants, concerts, spring break or summer vacations are all wonderful aspects of college life. However, they are also overcharging hotspots. When you are feeling free, you can end up with a costly bill. So enter into these situations with your near and far future in mind. Every swipe and tap is a loan you have to pay back. If you can’t do it fast, it will cost you.
9. Maximize rewards
Many credit cards, including student cards, come with valuable rewards programs. For example, the Capital One SavorOne Student Cash Rewards Credit Card will give you 8% cash back when you use the card to buy tickets at Vivid Seats (through January 2023). You’ll earn 3% back on dining, entertainment, streaming services and at grocery stores, then 1% back on everything else. With the Discover it® Student Cash Back, you can earn 5% cash back (in rotating categories) at places like Amazon.com, grocery stores, restaurants and gas stations, up to the quarterly maximum, then 1% after that. Make the most of those rewards by planning your charges according to the rewards structure. And don’t carry over debt, because interest will either reduce or eliminate the value.
10. Address issues immediately
Problems can arise with a credit card account, and you’ll want to rectify them as early as possible. Report fraudulent use so you don’t end up paying someone else’s charges. If you were faced with a financial emergency and charged so much you can’t make even the minimum requested payment on time, get on the phone right away with customer service to work out a solution. Waiting will always make it worse.
By following these simple guidelines for smart credit use, you will not only steer clear of financial problems and credit damage, but be on your way to a great credit rating. High credit scores will put you in a good position to borrow money at preferable rates, saving you money. And when you leave college, landlords that check credit reports are sure to be impressed by all those on-time payments and no or low debt – giving you an edge over those who don’t quite make the grade.