So, you’ve finally crossed the 18-year threshold into adulthood and you’re working toward completing a college degree. At long last, you can now legally get your very first credit card – but is it wise to make this decision while you’re still in school?
This is a question that pretty much every college student asks themselves.
Whether you have a job while you’re pursuing your higher education or you are still just getting help from your family, signing up for your first credit card can certainly be a good idea – but it comes with a lot of risk too.
Benefits of getting a credit card in college:
- The earlier you start building (healthy) credit history, the better
- You can start taking advantage of rewards/cash back programs
- You can use them for emergencies
- A lot of college students quickly accumulate high-interest debt
- Irresponsible behavior can hurt your credit history very early, affecting your ability to get loans during early adulthood
- Cosigners may be stuck dealing with your unpaid credit card debt
Figuring out if you are going to sign up for a credit card while you are still a college student is a choice that a lot of young people have to make, and the decision really comes down to your personal spending habits and individual financial situation.
First, let’s start with why getting a credit card when you’re a college student can be a good thing.
Getting a credit card in college: the good side
Starting your credit history: Credit cards are one of the easiest ways to start building up your credit history, which determines your credit score. It’s difficult to get an apartment, getting a car loan, and a whole host of other things without having an established credit history – so starting early is definitely a good path to take (as long as you don’t overspend and pay your bills on time). Also, the length of your credit history makes up 35% of your FICO score, so the earlier you start, the better.
Reaping the rewards of responsible credit card use: While credit cards that are geared toward college students don’t typically have the best rewards programs, there are still a few good options where you can earn cash back and rewards points. Here are a few examples:
- Capital One’s Journey Student Rewards Card gives its cardholders 1% cash back on all purchases, which rises to 1.25% if you pay your bill on time.
- The Citi ThankYou Preferred Card for College Students offers double points on dining and entertainment purchases.
- The Discover it card for students allows cardholders to earn 5% cash back on up to $1,500 each month.
Convenience and Emergencies: Sure, you can use debit cards like credit cards in most situations, but having a credit card in your wallet can come in handy. Some companies, like rental car companies and hotels, for example, will only accept a credit card to complete a reservation – and a debit card simply won’t cut it. Having an additional form of payment in case you lose your debit card is also a bonus.
In addition, emergencies happen every once in a while and sometimes we don’t always have the cash in our bank accounts to cover the costs. That’s why having a credit card (that isn’t maxed out) on hand is very helpful, and may get you out of a pinch in the near future.
The bad side.
You can only truly gain the benefits of having a credit card in college if you are using it correctly and responsibly. If you aren’t careful, you may ruin your finances before you even graduate. That’s why holding yourself accountable to good spending habits is crucial. Don’t make the following mistakes, and you will be golden.
Debt can pile up quickly: So, you suddenly have a bunch of available credit to spend, and you are surrounded by temptation – like buying new clothes, taking a weekend trip, upgrading your furniture, etc. If you are the type of person that doesn’t have self-control when it comes to your spending, then maybe it’s not the best idea. If you aren’t sure, just go for a card with a lower limit.
It’s a slippery slope. Your credit card balance may get closer and closer to the maximum, and that debt can stick around for several years if you don’t manage it early. You definitely don’t want to start your credit journey on that footing.
Your credit score can start off low: If you open up a college credit card and rack up a ton of purchases while not paying your bill on time, then your credit score is going to drop. That’s not the first thing you want to happen when your credit history begins, so being responsible with your spending and bill-paying methods is absolutely critical if you decide to get a college credit card.
These unintended consequences can be even worse if they start to affect other people – if a family member co-signed your credit card account, then they will be stuck with your debt should you fail to pay. You need to be especially careful if your credit card account has anyone else’s name attached to it. In fact, if you need a cosigner and you know you don’t have the best financial habits, maybe it’s best to wait until you open up your first credit card until after college.