Does a college student need a credit card? Better yet, should a college student apply for a credit card?
We all know that new credit card laws have made it more difficult for college students to obtain a student credit card. Now college students (and anyone that signs for them) need to think twice before getting that first credit.
There are many responsible credit card usage tips that college students can follow. On the flip side, there are also many college students that will fall victim to the credit card debt trap at an early age.
The question that I often receive in some shape or form is- should a college student have a credit card?
My answer is simple- all college students should have a credit card.
Before a mob of parents runs after me with blazing torches, allow me to explain myself.
Benefits of a Credit Card For College Students:
1. Build your credit rating.
When you make your first major purchase, whether it be a car or home, you will realize that one thing is very important- your credit score. This number makes a world of a difference. Before you do anything else you need to read about the importance of a credit rating.
The earlier you get a credit card the early you can build your credit rating. Yes I do realize the flip side here but please bare with me and continue reading for now.
Your credit rating becomes very important as you graduate from college and progress through your 20s. If you begin building up your credit at an early age you’ll notice some big wins.
Which leads into –
2. Reap the benefits of a high credit score in your adult years.
A high credit score can save you a boatload of money over the period of a loan. A high credit score means that you have good credit. Good credit means that lenders feel it’s less of a risk to loan you money. Since it’s less risky to loan you money, you can receive a lower rate on major purchases when they happen, and believe me they will happen.
A lower rate may not seem like a big deal now, but trust me it will be one day. Unless you buy your first new car or first home with 100% cash, you’re likely going to have to apply for a loan. You don’t want to be in your 30s kicking yourself in the butt for messing up your credit or for having no credit.
3. Get used to a credit card.
Chances are very high that you’re going to have to deal with a credit card for the rest of your life. There are adults that refuse to possess a credit card or are vehemently against credit cards (see: Adam Baker or Matt Jabs), but it’s fairly rare to not have a credit card.
Cutting up your credit cards is too simple and it won’t solve the problem. You should get into the habit of using a credit card and paying it off monthly ASAP.
Okay now let’s go a bit further- what if you think the reasons for having a credit card are decent but you’re still not fully convinced on student credit cards? A college student should only have a credit card under the following conditions:
Student Credit Card Conditions:
1. It’s a student credit card with a minuscule limit.
A couple of hundred bucks to $500 max! Until you’ve mastered your financial situation completely you shouldn’t accept anything over $500. A high amount of credit available to you can be very beneficial, but it can also ruin you financially if you don’t control yourself. All college students should start off with the lowest limit possible and not increase it until income grows. On top of that, it’s also becoming more difficult for college students to get more than $500 worth of credit.
2. The student credit card is used for reoccurring monthly expenses.
I’ve automated my credit card to pay for my gym membership, cell phone bill, and a few online subscriptions (I swear it’s not porn!). A simple way to build your credit without buying useless junk is to automate reoccurring monthly expenses to your credit card. We all have monthly expenses. So why not simplify your financial situation and automate your monthly expenses with your credit card?
3. The credit card is only used in emergencies.
Yes I know that some will view an “emergency” as seeing a pair of jeans on sale at Banana Republic. This is where the $500 limit comes into play. Even if you lose control and splurge, you won’t go bankrupt because of it. You’ll probably have to suck it up and get an extra job to pay the credit card off, but you won’t destroy your finances.
A credit card is also extremely critical in real emergencies. Shit will happen in life. There will be times when you need money to pay your way out of trouble. Whether it be paying for a tow truck while stuck on the side of the road in the winter to having your flight delayed. Hopefully this sort of thing doesn’t happen to you. But if it does you can use your credit card and then pay it off with your emergency fund money when you get home.
Are you a college student with a credit card? Share your story.
If you’re against the idea of college students and credit cards, please share.
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I will agree with you partially on this one, again, only under conditions of responsible use by the student with the credit card. But then again, if you answer this question like that, are you really answering the question?
A credit card in college should only be used to pay for emergency items… Books when you dont have cash, medical supplies when you notice something wrong with yourself and dont want to tell anyone, or food when you run out of meal money on your school card.
I think there obviously more cons than pros to having a credit card in college b/c you cant just tell them… “OK im only going to give you this card if you act responsibly w/ it”. 6 months later the kid has maxed out their $500 balance and not yet made a payment.
If you can get buy through college solely on paying w/ cash and a debt/checking card, then do that. Master paying with cash before moving to credit cards.
@Doctor S Good argument. As I mentioned in the article, I do realize that some students will blow the $500 on clothes but that’s better than blowing a grand or 5 grand on junk. It will happen more often than not but at least the $500 won’t necessarily ruin your financial situation. It’s manageable to work and pay off the credit card bill. Of course your credit rating will take a hit if you miss payments you’ve got to build self-control at some point.
It’s also unfair to assume that all college students are irresponsible. I have many buddies that manage their credit cards just well. In my opinion credit cards are not the reincarnation of Satan himself.
I’m concerned about maturity level of 18 year olds. What SOME do is get way in debt…have to work more to pay for it and then lose track of priorities and time management. I guess it depends on the individual…are they responsible…have a good track record with money?
My belief is that it is a parent’s job to teach their kids about responsible credit card use even from a young age. Just like many parents will take their kids to open up a savings account and explain to them how to budget their money, how compound interest works, etc.
I think that it is also very important for parents to teach kids how credit cards work and how to use credit cards so that the card works for them and not against them.
I wrote an article over on Money Ning a while ago about why I will definitely give my kids each a credit card from their early teens and then teach them how to use it responsibly while they are still under my roof rather than have them try to figure it out on their own for the first time while they are in college: http://moneyning.com/kids-and-money/why-give-my-kids-a-student-credit-card/
I can’t disagree with you there. Parents should teach their children about credit cards.
The only problem is that not everyone is raised by both parents and some people’s parents are horrible at managing money.
I do like your thinking though!
I’m a sophomore in college, and I have four credit cards (though one of them I don’t really use anymore.) Two of them are specifically student cards, three don’t have an annual fee (the fourth I’m seriously considering getting rid of in April), and all of them earn reward points. I pay my balance off every month, and I’ve earned at least a couple of free plane tickets, a solid number of free train tickets, and a decent chunk of ThankYou points (which I just used to save $65 on a hotel room last month). I realize not everyone can do this, but my parents have always done the same thing – paying off their card every month and reaping the rewards – and following their excellent example works really well for me.
Tonei where have you been this whole time? That’s really good to hear that your getting the most out of your credit cards.
Any other tips you willing to share with us?
I use mint.com to automatically track my finances, and I keep the bulk of my money in dedicated savings accounts at Alliant Credit Union (with the significant exception of a Roth IRA and a “moderately conservative” 529 at Charles Schwab). I set aside a little over half of my paychecks in savings – 10% for travel, 20% for my general savings/emergency fund, 20% for college expenses, and 3% to my IRA (I put $1000 in it last year, so I’m focusing on college costs now). 2% gets set aside to give to charities, and the rest gets used for my monthly expenses.
When I’m shopping online, I use evreward.com to find cash back opportunities, and retailmenot.com to find coupons for discounts and free shipping.
You have this completely figured out, congrats! Just curious, what’s your income situation like? You seem like the type of person that’s got the income aspect of personal finance figured out.
I have two part-time jobs for my university – as a residence hall desk receptionist ($8.25×10hrs/wk) and as a research assistant ($10×8hrs/wk). I also do some online survey stuff (see frozenactivist.net/money), get paid to promote bigwords.com on campus, and manage to pick up random things here and there (usually through browsing craigslist’s “gigs” section in my RSS reader).
Right on. It’s cool that you stopped by Tonei. I hope to see you around more because I could learn a lot from you.