So it’s your first semester of college. Classes are going well, your roommate seems pretty cool and the only real complaint you have is that you never have any money. Luckily, that’s one problem that’s easily solved. All you need to do is get your parents to co-sign for a student credit card and all of your money issues will disappear, right?
Wrong. While student credit cards can be a great way for young adults to responsibly build up their credit rating, these pieces of plastic are anything but safe. The new regulations that supposedly “control” student credit cards only make the cards more difficult to market to young people – interest rates and late penalties are just as damaging as they’ve always been. If you decide to sign up for a credit card in college and you want to avoid a dangerous situation, it’s important to know what you’re doing. Here are four facts about student credit cards that are worth remembering.
1) Balances are a bad thing. Student credit cards are only helpful when used responsibly. “Responsible use” implies spending much less than your allowable limit and paying off your balance, in full, at the end of the month. This enables you to keep your finances under control while simultaneously maximizing your credit score growth.
Conversely, if you let your spending get out of control and max out your $5,000 card, you’re going to be in trouble. You’ll start to accrue interest on your balance every month, which can send you into a tailspin of credit card debt. Card providers give students sky-high spending limits because these companies make the most money on large balances. They’re betting on the idea that you’re stupid enough to spend beyond your means. Don’t give them the satisfaction. Keep your spending under control and pay off your balance every month.
2) You only need one credit card. After you’ve had one credit card for a year or so, you’ll start receiving offers to apply for a second. Trash these offers as soon as you receive them. Don’t be like the 50% of college students who go nuts and take out four or more cards in their name.
You’re a college student. There’s no reason for a college student to maintain multiple credit accounts. This is especially true if you’re trying to apply for a second card to help pay off your balance on the first one. If you’re struggling with debt, then freeze your accounts and force yourself to pay down your balances before you start using credit again. Don’t add fuel to the fire by applying for a second card.
3) Add-on products are totally unnecessary. Your credit card company will likely offer you a bevy of add-on services when you apply for your card – things like credit score monitoring, identity theft protection and payment insurance. These services may sound useful, but in reality, they’re just tools that companies use to fleece you out of your money.
Payment insurance is overpriced and doesn’t work. “Identity protection” services simply notify you any time a suspicious charge shows up on the bill you’re going to receive anyway, and you can monitor your own credit score through the government for free. Do the wise thing and avoid these thinly veiled scams.
4) Use it or lose it. Though we’ve made it a point to highlight the dangers of overspending with your credit card, this doesn’t mean you shouldn’t use the card at all. Credit monitoring agencies can only evaluate you by looking at the purchases you make on your card. If you don’t make any purchases, then you won’t show up on their radar. Consequently your credit score won’t grow.
So after you get your credit card, remember to use it. Treat the card as if it were linked to your own bank account. Spend frequently with the understanding that you’re going to have to pay off your charges at the end of the month. If you can do this, it should be easy to develop very respectable credit score by the time you graduate.
A credit card isn’t a toy, and it’s not free money. It’s a tool that can be helpful for responsible adults and ruinous for irresponsible adults, a ticket to convenient rewards or unfathomable financial woe. Don’t end up like the average college student, who graduates with around $4,000 in credit card debt. Keep these four key credit facts in mind if you want to make the most of your credit card experience and your college years too.