What Every College Student Should Know About Using Credit Cards

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You might be shocked to discover that over 67% of college undergraduate students have credit card debt, according to a survey conducted by U.S. News & World Report.

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Although building a good credit history is essential for future purchases such as a home, accumulating credit card debt early can set you back significantly. It’s important to learn how to use credit cards responsibly so you can enjoy the benefits without building debt.

Keep reading to discover why it’s important to build a good credit history and the pros and cons of opening a credit card in order to get started building a responsible credit history. 

Why Building a Good Credit History Is Important

If you don’t know what a credit score is, you are not alone: Many college students have never used credit cards before. The phrase “credit history” refers to your history with credit cards assembled into a credit report and given a grade, called a credit score. Users with histories of credit card debt or who have histories of missing payments typically have lower credit scores.

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When it comes to borrowing money, buying a new home or renting an apartment, landlords and lenders often check applicants’ credit histories and credit scores in order to determine whether they will be good candidates.

If you have a poor credit score, lenders might require a co-signer and you might face an expensive security deposit before moving in. 

Building a good credit history is essential for obtaining the job you want and the apartment or house of your dreams in the future. Whether you use a credit card in college is entirely up to you. However, if you do decide to open this type of account — or already are using one — here are some key tips to be aware of.

Pick a Card for You

No matter how many Instagram ads you might see advertising the Venmo credit card or American Eagle credit card, don’t forget that YOU pick your credit card, a credit card does not pick you. 

It’s best to avoid picking out a credit card for a free hoodie or $200 off a purchase. Instead, compare credit cards by looking at the fees, interest rates and terms and conditions. If you are a college student, it’s best to prioritize cards without annual fees and ones that feature low credit limits and low interest rates. 

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Now that you know a little more about why credit cards are important and how to pick out a credit card that works for you, let’s take a look at some pros and cons of cards that every college student should be aware of. 

Pros of Opening a Credit Card

Opening a credit card can help you gain financial freedom and access loans and housing benefits in the future. Here are more benefits:

Build Your Financial Foundation

Creating a budget and tracking your finances is often a more liberating process than you might think. These cards are incredibly helpful for keeping track of spending and, as long as you use them wisely, they can be major assets to building a financial foundation.

Credit cards can be incredibly helpful for college students looking to manage their money and their monthly budgets. 

Student Card Benefits

If your bank or credit institution offers a student credit card option, be sure to take advantage of it. A huge pro of opening a credit card while in school is the option to open a student card that acts as a starter credit card and can help you adjust to this type of payment.

Student credit cards are perfect for new users; they often offer low credit limits and ease users into the process by preventing overspending and keeping payments on a lower scale. This also can help students get into the rhythm of making monthly payments on time without accumulating interest.

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Enjoy Lower Loan Rates

You might be surprised to discover that a credit card can help you enjoy lower student loan rates and improved car insurance rates. As most college students are experiencing independence for the first time and might be looking to invest in new cars or are looking for the lowest student loan rates possible, opening a credit card can help.

Auto lenders often check credit history. If they see that you have a history of making payments on time, they are likely to offer a lower interest rate to you than they might offer to someone without credit experience. Similarly, a good credit history can help you qualify for better private student loan rates and help you refinance your student loans for better rates.

Cons of Opening a Credit Card

Although there are many benefits of opening a credit card while in college, there are also some important costs you might want to consider first. 

Enticing Initial Benefits Won’t Last

How many times have you thought about opening a credit card to enjoy “$200 off your purchase”? You might’ve also seen 0% interest for the first six months and cash back on specific purchases. While these appeals are incredibly enticing, they do not last forever. 

Be sure to read the fine print on any introductory offers. While a 0% interest rate on a $500 balance might make it easy to skip a payment and tell yourself you will pay it off next month, in six months when the interest rate defaults to a higher percentage a 25% interest rate suddenly can make even a minimum balance challenging to pay. 

Credit Cards Might Reveal Bad Spending Habits

If you have an unpleasant history of money management and budgeting, opening a credit card will only highlight your poor habits. If you want to open a credit card in college but are aware of your poor financial habits, it might be best to master budgeting before opening a credit card and negatively impacting your credit score. 

Further, it can be challenging to stay on top of credit card payments amid classes, extracurriculars and an on-campus job. If you have trouble keeping on top of your school and work assignments as it is, you might want to hold off on opening a credit card. Simply missing one payment can have a major negative impact on your credit.

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About the Author

Maddie Duley is a content intern for ConsumerTrack writing about finances for GOBankingRates. She is currently pursuing a bachelor's degree in communication and design from the University of California Davis.
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