College students, as a group, are not universally known for their financial acumen, high incomes, or stellar credit scores. However, despite their lack of credit experience, a recent study from Sallie Mae suggests more than half — 56% — of college students have a credit card that they use for some or all of their purchases.
And, surprisingly, most students seem to be using their credit cards fairly well, with 60% reporting that they rarely or never carry a balance from month to month. Which is good news, as responsible use of a credit card can be a simple way to establish and build your credit profile — but irresponsible use can start your credit journey on the wrong foot, a mistake that could take years to undo.
If you’re currently in college — or headed that way — getting a credit card has probably crossed your (or your parents’) mind. Given that most high school educations won’t prepare you for building credit, here is a (brief) guide to using credit cards in college.
Qualifying for a Credit Card
The first thing to know about using credit cards as a student is that you may need to jump through a hoop or two just to qualify for a new card. That’s because the CARD Act of 2009 made it more difficult for consumers under the age of 21 to qualify for their own credit card, even though you need to be at least 18 years old.
Post-CARD Act, potential credit card applicants between the ages of 18 and 21 will need to have a verifiable independent income or a qualified cosigner to qualify for their own credit card account.
Without a cosigner, your personal income needs to be large enough to cover any potential card payments without unduly stressing your resources. And, no, your weekly allowance, Christmas checks from grandma, or other gifts do not count as income for a credit card. That said, you can typically count income received from scholarships, grants, and fellowships so long as the funds are not solely for education expenses.
Alternatively, you could ask a parent or family member who meets the basic requirements — i.e., who has good credit and a steady income — to cosign the credit card application. Needing a cosigner will limit your options, however, as few major card issuers allow cosigners, meaning your best bet may be a local credit union.
Choosing the Right Card
Whether you need a cosigner or will sign-up on your own, choosing the right card can have a big impact on your entire experience. Thankfully, college students have the ability to qualify for student credit cards, some of the best starter cards on the market.
Credit card issuers are eager to get in on the ground floor when it comes to financial brand loyalty, and most major issuers offer some form of easy-to-get student credit card. These cards will have no credit history requirements, making them ideal for college-bound young adults who need to establish credit for the first time.
Student credit cards often have low or no annual fee, and most student cards offer purchase rewards of some type. And, although student cards aren’t exactly known for their high credit limits, the same can be said about any starter card. Plus, student cards are generally easy to perform a product change to something else after you graduate.
If, for some reason, you don’t want a student credit card, secured cards are another good option for establishing and building credit. You can find secured cards with reasonable deposit requirements that come with purchase rewards and low fees, and many secured cards can be upgraded to an unsecured product after your credit improves.
Staying on Top of Your Purchases
Numerous studies have shown that paying with plastic tends to make most people spend more than if they were paying with cash. That’s because you feel the cost more when you have to physically hand over your hard-earned cash and see the money in your wallet disappear.
Although it’s a bit old-school these days, keeping some sort of purchase log — what would have once been your checkbook — to track your purchases is a good way to stay on top of your budget. You can keep a small notebook on hand to record your purchases, or download any number of handy budgeting or tracking apps if you prefer the digital touch. Some apps nowadays will even allow you to track all of your cards and accounts in one place.
A good method of tracking purchases can also be a valuable tool when it comes to checking your credit card statements at the end of the month. And yes, you should go over your credit card statements every month to make sure you recognize each charge, and not just to catch any potential card fraud. Double charges, misplaced refunds, and other common errors can crop up on your statements and are best addressed as soon as possible.
Building Credit Wisely
Of course, making sure you don’t out-charge your budget is just one part of using credit cards responsibly, especially when building credit. You’ll also want to make sure you’re following a few simple rules:
- Always pay your credit card bill before (not on) the due date. Late payments can result in late fees, and really late payments — more than 30 days past due — can result in damage to your credit scores. Try to pay early when possible to allow for any issues like technical problems or mail delays.
- Pay your credit card in full each month. Technically, you only need to make the minimum required payment on time each month to avoid late fees or credit problems. However, minimum payments are designed to maximize issuer profits, not to pay down your debt quickly or save you money on interest fees. Pay in full each month to avoid accumulating expensive debt and high interest fees.
- Keep low balances on your credit cards. While you should use your card regularly to keep the account open and active, you want to keep your balance low relative to your credit limit — this is also known as your utilization rate. A high utilization rate is a bad sign to lenders and can cause your credit score to decrease.
- Don’t open too many accounts at once. It can be tempting to run out and get multiple credit cards in an attempt to improve your credit scores faster, but this doesn’t actually work. If anything, it will likely have the opposite effect, as opening new cards will negatively impact the “new accounts” and “average account age” factors of your credit score.
In addition to following these rules, you should also do a little research into all of the factors that go into your credit score so you can plan your future credit-building strategy wisely. Building good credit is a marathon, not a race, but joining the game while you’re still in college can be a good way to get a jumpstart on good credit scores.
Bad credit doesn’t have to ruin you future and you definitely don’t have to fix it alone. Lexington Law provides a free consultation to help you understand where you need to start and what your next steps are.You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.
Guest Article from BadCredit.org