7 Credit Card Tips For College Students
A student credit card should be used to build credit and learn how to manage money. You likely walked on campus hoping to start your freshman year with good intentions and good grades. It’s the same with credit cards. You want to use your first year with a credit card to set up good money habits to build your credit.
Read on to learn some best practices for using a student credit card.
1. Don’t Spend More Than You Can Afford
Remember, you’ll need to pay your credit card balance back eventually. Overextending yourself could mean paying credit card interest or struggling with payments. Credit card companies know they're offering credit to students with limited credit history, so student credit cards tend to have high interest rates, which you’ll have to deal with once the introductory annual percentage rate (APR) period is up.
Ideally, you would pay off your credit card balance each billing cycle. If you can only make the minimum payment, though, you'll pay a lot in interest. Just making the minimum payment while continuing to use the card can land you in credit card debt.
2. Be Aware Of Cards With Interest-Free Deals
Some credit card issuers offer a 0% APR promotional period on their student cards. The upside is that for 6 – 18 months or more, interest won't be charged on your credit card purchases. The downside is that the interest-free period doesn’t last forever.
If you don't pay off the card before the promotional period ends, you will be charged interest on any remaining balance.
Let’s say your card offers 6 months of interest-free payments, and by the end of 6 months, you haven't paid off your credit card. You’ll see a large interest charge on your next billing statement.
3. Consider A Co-Signer Or Becoming An Authorized User
If you're having trouble getting a credit card because you have no credit history, consider getting a co-signer on your student card or becoming an authorized user on another person's card.
Your choice of co-signer should have an excellent credit history. But many people are uneasy about acting as co-signers because their name and credit are on the line if you don’t pay your credit card bill. To boost your chances of recruiting a co-signer, ask close family members or friends who know and trust you whether they would be willing to help.
The other option is to become an authorized user on someone else’s card. Becoming an authorized user won’t build credit as fast as having your own credit card, but it gives the account holder more control.
4. Create A Budget
Budgeting makes your money work for you. You lay out your expenses, prioritize them and then compare them to your income. Creating a budget also helps you manage your money and may help cut down on impulse buys.
You can take advantage of credit card cash-back perks by budgeting the money you’ll spend at the grocery store and gas station and using your credit card for these purchases. Or, using your debit card for everyday purchases and your credit card for big purchases is another strategy that will allow you to take advantage of certain perks, such as travel rewards.
5. Maintain A Low Credit Utilization Ratio
Credit utilization is the ratio between your credit limit and credit card balance. Most experts recommend keeping it to 30% or lower. For example, if your card has a $1,000 credit limit, you should do your best to keep your balance at or below $300.
6. Pay Off Your Card Balance Each Month
If you pay off your balance each billing cycle, you don’t need to worry about compounding interest and growing credit card debt. Paying off your balance each month can help you build a good credit score and history without accumulating credit card debt.
Keep an eye on your credit card account to be sure you don't overspend. Carrying a balance from one statement closing date to the next will only mean you pay more interest.
7. Carefully Consider Cash Advances
You’ll be charged interest as soon as those dollar bills land in your hand if you take out cash using your credit card. Plus, cash advance rates tend to be much higher than purchase rates. If you have no choice and must take out a cash advance, be prepared to pay it back with interest.
