Credit Cards & College Students

College Students: What to Know About Credit Cards

If you’re in college, you might be thinking about getting a credit card. After all, college is a time many students take on new responsibilities. Let’s take a look at why college students might benefit from having a credit card and how to choose one and use it responsibly.

Credit Cards Build Credit History

Credit cards can help you build the credit history you need to begin an independent life. When you rent an apartment, get your own mobile phone plan, apply for a car loan, or in some cases apply for a job, your credit score will be checked. Part of building a good credit score is consistently paying back small amounts of credit on-time.

Credit Cards Come with Risk

If you overspend on your credit card and cannot make your monthly payments, you risk getting into debt and hurting your credit score. It’s a risk to take seriously — a 2019 survey by financial companies EVERGI and AIG showed that over a third of U.S. college students have more than $1,000 in credit card debt and 15% of students had already hurt their credit scores through late credit card payments.

Good Credit History Leads to Opportunity

Once you’re ready for your first credit card, there are several ways to go about it. Federal law puts restrictions on how someone under 21 years old can obtain a credit card, but you might find that these conditions help you dip your toe into the pool of financial responsibility without getting too overwhelmed. If you are at least 18 years old, you can apply for your own credit card if you can show you have the income to cover minimum monthly payments or if a parent or guardian will co-sign for you and be responsible for your unpaid debt. If you have a co-signor, they have to agree to any credit limit increases. Your parents could also make you an authorized user of one of their credit cards; they’ll be able to see any purchase you make and can quickly help you adjust your spending if you get in over your head.

Choose Credit Cards Wisely

Do your research when choosing a credit card, and consider these most basic features when you’re just getting started:

• Low fees — Get a card with no annual fee if you can. Otherwise, look for low annual fees and ask if it can be reduced or eliminated after a year or two of good credit history. Also check what the fees would be for late payments, going over your credit limit, or any other conditions.
• Long grace period — This is how many days you have to pay your bill in full before you start to accrue interest.
• Low annual percentage rate (APR) — This is the interest you are charged on any balance you don’t pay off each month. Some cards offer a teaser rate: a low or no APR for a short period of time. Be sure to check what the interest rate will be once that teaser rate expires. Also check the default APR, the (often higher) interest rate you are charged if you miss payments or go over your limit.

Manage Your Spending

Try to always make your payments in full and on-time. Consider these tips to help manage your spending:

• Limit the number of credit cards you have and keep your total credit limit small to reduce the temptation to overspend.
• Choose credit limits and budget spending based on the level of income you think you’ll have consistently. Think ahead on whether you might reduce work hours in the future to take advantage of an important course or internship, or what your next job options are if your current employment is seasonal or temporary.
• Use the card only for specific payments you’ve planned for ahead of time, not for impulse buys. Pick small payments that are part of your basic needs budget, such as gas for the car or phone plans.
• Keep a record of purchases you’ve made with the card so that you have a running total of what you’ve spent.

If emergencies or a slip up in your spending does put you in debt, it can be overwhelming to know how to pay it off, especially if you have student loans to repay, too. The best way to get back out of debt is to make a plan, prioritizing the most expensive debt (which is often the credit card) and including a date that is your personal deadline for being debt free. The nonprofit American Consumer Credit Counseling suggests budgeting 5% of your income as a general guide for paying down debt.

Take Action

Take advantage of tools, resources, and guidance that can help you take control of your financial health. UFCU offers free online resources, seminars, and the opportunity to connect with a professional.