Here’s Why Getting a Credit Card Can Be a Smart Financial Move in College
By Melissa Burns
Many young people and their parents are skeptical about credit cards. Even if you’re already out of college, you may hesitate to open a credit card account; according to a recent survey from Bankrate.com, 63 percent of Millennials aged 18 to 29 don’t have any credit cards.
Thanks to the CARD Act of 2009, it’s no longer as easy as it once was for college students to obtain their own credit cards. Now, if you’re under 21, you need an older co-signer or proof of independent income in order to get a credit card in your own name.
But that doesn’t mean that a credit card can’t be a valuable financial tool if you’re a college student. Used responsibly, a credit card can help you begin building your credit history and establish good credit, and that’s important if you hope to succeed after graduation. Just make sure you understand how credit cards work, and how to use them so that they help, rather than harm, your financial future.
Why You Need Good Credit
When you’re in college, it can be hard to anticipate what you’re going to need and want five, 10, or 15 years into the future. If you’re like many young people, you’re probably not looking ahead to the day when you’ll want to take out a loan to buy your first new car, or a mortgage to buy your first home. You may not even believe that you’ll ever have enough money to do those things, or you may feel that you can just as easily put off building your credit history until after graduation.
But the sooner you start building credit, the longer your repayment history will be, and that will boost your credit score. You see, you don’t start out in life with good credit; you start out with no credit at all, and while that’s not as big of an obstacle as having bad credit, it’s still not going to help you much after you graduate. A good credit score can help you get the best interest rates on mortgages and car loans, or help you avoid paying a deposit when you sign up for utilities or get a cell phone.
But that’s not the only reason you need good credit. Many employers take credit history into account when deciding between multiple job candidates. A landlord or leasing agency may look at your credit history when deciding whether or not to rent you that sweet apartment you’ve got your eye on. You’ll even get better insurance rates and have an easier time renting a car or vacation home in the future.
How to Build Credit Using a Credit Card
If you’ve borrowed money to pay for college, your student loan payments will certainly appear on your credit report — after you start making them. In order to start building credit right away, you need a credit card as soon as possible; and remember, the longer your history of using credit responsibly, the better your credit history.
Many issuers offer student credit cards with low interest rates and low to nonexistent fees. To find the best credit card for your needs, use a website like CompareCards.com to find the best credit card for fair credit. Make sure you know the basics of how credit cards work, including:
- The APR, or Annual Percentage Rate, is the amount of interest you’ll pay for carrying a balance from one month to the next
- You can avoid paying any interest by paying the balance off in full each month
- Many cards charge an annual fee which you must pay in order to use the card, but most don’t
- Rewards programs can be a great way to earn cash back, points toward airline travel, and more
To avoid racking up more debt that you can pay back, never charge more to your credit card than you can afford to pay off each month. Charging more than 30 percent of your total credit limit can hurt your credit, because it suggests to lenders that you’re relying too much on credit to make ends meet. So, even if you must charge a big-ticket item and pay it off over several months, keep it below 30 percent of your maximum limit if you can. Avoid getting cash advances on your credit card; these advances typically come with high interest rates and hard-to-swallow fees, so if you need some extra cash in a hurry, it’s a better idea to ask Mom and Dad, or even borrow it from a friend.
You may be hesitant to get a credit card while you’re still in college, but credit cards can actually be valuable financial tools. Getting a credit card early on, and using it responsibly, can help you build up a longer borrowing history and establish a good credit score — and that will reap benefits for years to come once you’re out in the real world.
Melissa Burns graduated from the faculty of Journalism of Iowa State University in 2008. Nowadays she is an entrepreneur and independent journalist. Her sphere of interests includes startups, information technologies and how these ones may be implemented in the sphere of education. You may contact Melissa: firstname.lastname@example.org