As a college student, you have an excellent opportunity to start learning about credit and credit cards. By establishing a now, you’ll have a better chance of qualifying for valuable rewards credit cards and getting better loan interest rates when you graduate.
Here’s how you can start building credit with a or today.
is simple: You borrow money, and it’s your financial responsibility to pay it back. If you don’t pay it back, you typically have to pay interest and/or late fees. If you only make a minimum payment, you must pay interest according to the .
This can get costly when using a credit card. Current are more than 22% APR on average for accounts assessed interest. As interest compounds on your balance, you could be left with lasting debt, which is why it’s important to use your credit card for purchases you can afford without overspending.
Credit cards aren’t just a way to access credit; they can also help you build credit and establish a credit score. Your is a numerical representation of your creditworthiness, or how likely you are to use credit and pay back lenders responsibly. Your credit score can go up or down depending on your actions involving credit products, including applying for credit, having active loans (including student loans or car loans) and credit card accounts, and making on-time payments.
Practicing good financial habits can help you increase your score and learn to responsibly use credit cards while avoiding debt long-term.
You may have little or no credit history on your credit report as a college student. That immediately rules you out for most and other cards with high credit qualifications. Instead, you’re more likely to qualify for a student or secured credit card with less-strict eligibility requirements.
These are ideal first credit cards because they often have no annual fee and they’re designed to help you build credit, whether you’re starting with no credit history or (in the case of some secured cards) rebuilding a bad credit score.
work like any other credit card, and many even offer rewards on everyday spending. In addition to personal information, you may need to provide proof of enrollment when you apply with some issuers. You can typically continue using your student card after you graduate or upgrade to a non-student card with your issuer.
Secured credit cards work a bit differently; the main difference between a is that secured cards require a security deposit. The deposit acts as collateral, and the amount usually equals your credit line. For example, a $300 security deposit gets you a $300 credit limit on many secured cards.
Apart from the required security deposit, secured cards are nearly identical to unsecured cards. You can use them anywhere they’re accepted and most of them, if payment activity is reported to , can help you build your credit history.
Each month, you’ll receive your credit card statement with a summary of your spending and a due date. That’s the date by which you must pay at least the toward your balance.
Paying your balance in full by the due date will help you avoid costly interest charges, but you should strive to pay at least the minimum if you can’t pay off your full balance. If you miss a credit card payment, you’ll risk taking on late fees and penalties. Your credit card issuer may even increase your interest rate to the card’s penalty APR, which can be much higher than your regular rate.
Payment history is also the most influential factor in your credit score. Making timely payments each month is one of the best ways to build your credit — and leaving unpaid can have negative consequences for your credit score.
Consider automatic payments to ensure you always pay your balance on time. Most financial institutions let you link a bank account to make automatic payments before your balance due date.
The most significant risk with credit cards is getting into . That only happens if you make purchases and don’t pay off your balance in full.
You’ll have the most success building credit and avoiding high-interest debt when you treat your credit card more like a debit card. With a , you can only spend what’s available in your account. You can do the same with your credit card by only spending what you have in the bank to pay off month-to-month, regardless of your .
Then, make sure you pay that total balance by the due date each month. only apply to balances left after your payment due date, so paying in full can help ensure that you don’t get charged interest on your purchases.
Paying in full is the best way to avoid lasting credit card debt. Many credit card companies compound interest daily, which is interest charged on top of interest. Since most credit cards have high interest rates, compound interest can quickly get out of control with high unpaid balances.
There’s no need to rush into the world of credit cards if you’re just starting out. Using student or secured credit card for a while, such as six to twelve months or more, can help you learn how credit cards work. It gives you time to practice making purchases and payments and also lets you establish a positive credit history that can benefit your financial future.
Like payment history, is one of many factors that affect your credit score.
Your credit utilization is how much credit you’re using of your available credit. For example, making a $500 purchase on a card with a $1,000 credit limit would put you at 50% utilization. It’s recommended that you stay under 30% credit utilization to avoid impacting your credit score.
As a , your primary goal with credit cards should be building a solid credit history by making timely payments and keeping a low credit utilization. But it can also be smart to learn about credit card perks and rewards to use in the future. Some credit cards for building credit even offer you can use to save money today.
Once you establish a good credit score, you’ll be more likely to qualify for top . These cards offer points, miles, or cash back on purchases. A great rewards card that offers bonus rewards on the purchases you make most (travel, , groceries, , and more) can help you save hundreds of dollars each year.
Many credit cards also provide in addition to rewards. These could include purchase protection, cell phone protection, travel insurance, and more.
Student credit cards provide an excellent and interest-free way to build your credit. You won't have to worry about late fees or interest charges if you pay your credit card bill in full monthly and don’t make late payments.
Using a student credit card to make purchases and always paying your bill on time can help you establish and build your credit history. As you make purchases and pay them off, your issuer reports your payment history to the credit bureaus. That payment history, in particular, is a huge factor in determining your FICO score, one of the most popular credit scores lenders use.
Student credit cards typically have , which could quickly lead to debt if you don’t pay off your monthly balance. In addition, student cards don’t tend to have as many benefits or earning opportunities as top travel or rewards credit cards.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
