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A credit card in college? Smart or risky?


credit cards on a keyboard

As young students leave the financial safety of their parents and embark on an adventure of their financial responsibility, credit becomes a significant part of finances. Many individuals have a debit card and use money directly from the bank. When asking students about why they don't use credit cards, one would say:

"Well, I don't know enough about credit cards to use one responsibly,"- a fellow university student

It is a responsible decision not to get one when you are not educated, but why not learn? You will know that there are many benefits to credit cards and that they can be a necessity in the world of finances. Read as I take you down the journey of why a credit card in college is smart.


You should get a credit card in college.


hand holding a card

I am advocating for you to get a credit card in college, but you must be responsible. The reason why getting a credit card is so essential is because of your credit score. In this day and age, many of our finances in the U.S. are built around credit. For example, let's say you're a third year that wants to get an apartment. You apply for an apartment and learn that you may have to pay a deposit of $1000 (money they hold on to until the lease is over). Suppose you have a good credit score. In that case, you may qualify for a cheaper deposit or be exempt from a deposit altogether. That's $1000 dollars that you can hold on to, why wouldn't you want that? 

You may have faced situations where good behavior has been helpful as a student. For example, loans. While not all students have to take out loans, many do. Also, if you are in a university planning to attend medical school. In that case, you'll likely need big loans to afford the education. Well, to be approved for loans, you must have good credit. Starting in college (especially as a first-year) is important because credit scores take time to build, and a credit card is an excellent way to get started.


How to use a credit card responsibly:


man holding his credit card to make a purchase

As Randy Houser said in his heartwarming reflective song, Note to self,:

"That credit card ain't money in the bank"

He is entirely correct; it is not. That is the first mistake people make when they get credit cards and end up in heavy debt. They see credit cards as free money and forget that they have acquired interest and will need to pay it back one day. Credit cards are not your money; keep that in mind. It would be best if you never spent more on credit than spending money you can make in 2 weeks. Your credit card limit (personal) should be low enough that in under one month, you can pay it off in full, even if it's maxed out. For example, let's say a car emergency happened, and you didn't have the money then. You used your credit card and maxed it out at 500 dollars. You should be able to pay that off in full in under a month, which is better if you spend under two weeks. If you don't make enough to do that, then don't use your credit card to that extent. Refer to alternative solutions (public transportation, bikes, etc). Credit cards may give some space for money, but getting comfortable with not paying off your credit card is risky and doesn't help build your credit card.

The best way to responsibly use credit cards is to use them for small, affordable payments. It's much safer and more manageable. Furthermore, make sure to stay on top of when payments and fees are due. Late payments should be avoided at all costs to build good credit.


How to use a credit card to build good credit?


two people signing documents

The first thing to note is what is a credit score built up of:

  1. Payment history (40%)

    1. Paying your payments on time influence this part.

  2. Credit usage (23%)

    1. Based on how much of your credit you used. It is suggested that you used under 30% of your credit card to maintain good credit here (if your limit is $500, use under $150).

    2. If you use much of your credit or max out your card, paying off the debt will help improve your credit score back to where it was)

  3. Account Mix (11%)

    1. The diversity of the accounts you have open (credit cards, loans, etc).

    2. Having a good mix can help this section (1 small loan and credit card account). Learn about loans before getting one.

  4. Credit age (21%)

    1. This is our focus in growing. Credit age improves as you use credit card longer for a period of time.

    2. Make small payments every few months to improve your credit card age.

    3. Don't open too many new accounts over time because it will lower average credit age.

  5. Inquiries (5%)

    1. When companies check your credit score. It's called a hard inquiry, and it lowers your credit card for a short amount of time.

    2. Don't worry too much about this section, your credit score will automatically repair itself over time after the inquiry.


To build your credit score, we will focus mainly on payment history, credit card age, and credit card usage.

Always pay on time when using your credit card; this will have the greatest impact on your credit score. After you mess up your payment history, it can take months or longer to fix your credit score. It's best not to do it at all. I recommend paying off your credit card full at the end of every month so you don't have to worry about payments or interest.

Use your credit card over time. After a year of using it, you will see a significant increase in your credit age. The longer, the better.

Remember that staying at 30% of your credit card use is optimal, but if you go over, it's okay. Paying off your card will fix this. So, if you go over, pay it off so it's back under 30%. Don't stay at 0% for a few months, though, because your account may be closed if you don't use your credit card over time.


Plans to use credit cards safely:


card in a shopping bag

  1. Use it only on dates or hangouts

  2. Use it only on small expenses like school supplies

  3. Use it only for snacks and ramen (food)

  4. Use it only for small things like treating yourself for ice cream.

  5. Use it only for gas (some credit cards have additional benefits regarding gas)

  6. Use it only for subscriptions or video game purchases (safely, remember cyber security)

  7. Use it only for makeup, cologne, perfume, or other hygiene products.

  8. Use it only for small gifts.

  9. Use it only for small repairs (changing a tire or lights)

  10. Use it only for manga or books.

Whatever you use your credit card for, make sure it's affordable and responsible.


Risk:

  • Credit cards can be stolen and used. Be protective and aware of your credit card at all times.

  • Errors are possible, be prepare to dispute any error that appears in your credit history.

  • information leak (agencies may leak your information, make sure to get your credit card from a trusted bank, credit union, or company.)

  • Promote unnecessary spending (psychologically may influence you to spend more than needed)

  • If irresponsible, can get a bad credit score which prevents opportunities.


Overall: A credit card in college? Smart or risky?


woman smiling at the screen

Getting a credit card in college is a decisive step to starting your financial journey, as long as you practice financial responsibility. A good credit score will ease your life as you face more significant purchases such as a car, house, or desired loans, so why not start working on it as soon as possible? Be careful but get a credit card and start working slowly to get that good credit score. So should you get a credit card in college? yes. And we believe in you!


Thank you for reading! if you have any questions, criticisms, or thoughts, please write it down in the comments. We wish everyone an exciting day!


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1 commentaire


Minerva
Minerva
08 mars

Very helpful information for beginners or anyone who is too intimidated by getting a credit card! Much appreciated.

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