College students have a lot on their plate, from classes to social activities to career development. Along the way, they learn valuable life skills that will help them in adulthood. One powerful skill to master is how to effectively build credit. Practicing credit building as a college student can help prepare you for your future after college.
If used responsibly, having your first credit card in college can help you learn how to manage your money. Check out these seven credit card tips to get college students started on the right path to building a healthy financial future.
1. Understand that your main goal is to build trust
There are a lot of flashy ads and enticing promises about credit cards, but your first card is all about building credit.
Use your budget as an opportunity to develop responsible habits like paying your bills on time and spending within your means. You can also check your credit score for free using your card issuer’s credit reporting tools or Experian, a credit bureau. College life is already pretty busy, so make sure you take advantage of the tools available to help you stay financially accountable.
2. Decide what to buy with your card
When creating a budget, you need to decide not only what to buy but also how you will pay for it.
Keep in mind that your first credit card will probably have a low limit, perhaps around $200.To practice using your card and making monthly payments, consider dedicating the card to one monthly bill or purchase, such as:
- Streaming Services
- Bus or public transport passes
- Gym membership
- Monthly prescription refills
- Recharge your Campus Dining Card
If you get a student credit card that offers rewards in certain categories, like gas station purchases or restaurant purchases, you may consider using the card only for purchases in those categories.
Make sure the bills and purchases you pay on your card don’t exceed your limit, and remember that your credit utilization ratio (the amount of credit you have available compared to the amount you’re actually using) makes up 30 percent of your FICO score.
3. Stick to one card
Once you’re old enough to apply for a credit card, you may have a few options available to you, but while you’re in college, one card will likely be enough to cover your needs.
Applying for multiple cards in a short period of time will result in credit inquiries and affect your credit score. Limiting yourself to one credit card makes the credit-building process easier to manage alongside a busy student schedule.
To narrow down your card choices and get an idea of your chances of approval (without a hard credit check), try Bankrate’s CardMatch tool, which runs a soft credit check that doesn’t affect your credit score and presents you with personalized offers and pre-approvals from a variety of card issuers.
4. Only spend what you can afford to pay back
Keep in mind that your credit limit is the maximum amount you can spend, but not necessarily the amount you should spend.
No matter how much you spend, you still have to pay it back. If you don’t pay it back on time, interest will start to accrue and you’ll have to pay more. Since many college students live on a tight budget, it’s best to only buy what you can pay off in full each month to avoid paying interest.
And, if possible, try not to get into a vicious cycle of only making the minimum payments, which will allow interest to pile up and make it harder to get out of debt.
5. Always pay on time
As the most important credit score factor, payment history accounts for 35% of your FICO score, which is why it’s so important to always make your credit card payments on time.
No matter how busy your classes and social commitments are, make it a priority to pay your credit card bills on time. Setting up autopay can help ease the mental strain.
If you can’t pay your bill in full, make the minimum payments to protect your credit, but remember that interest will start accruing on any remaining balance.
6. Build trust first, reap rewards second
When you start using credit cards, your primary focus should be on building a good credit history with responsible habits, as mentioned above. Building good credit now will give you access to the best credit cards in the future.
That said, having a card that gives you points on some spending can be a helpful way to save money while in college. Even 1 to 3 percent off common purchases like gas and groceries can add up to a lot in the long run. Also, tailoring your spending to certain categories can help you get used to that mindset before you get a credit card that offers better rewards.
7. When in doubt, choose a student card as your first card.
Students have access to a valuable piece of the credit card market: student credit cards. Designed with students in mind, these cards offer benefits tailored to their needs.
The best student credit cards usually have lower fees and better APRs than non-student credit cards with no credit history, and you also have the option to upgrade to a non-student version after you graduate. Student credit card perks sometimes include welcome bonuses and rewards for everyday spending at college. You might also be able to get a card with an introductory annual percentage rate (APR) offer that lets you pay off big-ticket purchases like books and dorm supplies over time before paying interest.
Conclusion
Credit cards help you build a good credit history and credit score early on, which can help you achieve future financial milestones, like buying a home, more quickly and easily. Good credit comes from consistent, good habits. When you get your first credit card, pay your bills on time, avoid overspending, and aim to earn rewards responsibly. By following these tips, you could be able to get your next credit card in just a few years.