If you’re in college, you probably have a lot on your schedule: classroom activities, extracurricular activities, part-time jobs, and more. You probably haven’t thought about whether you should add “building a good credit history” to your to-do list, but if you take the time to build a positive credit history now, it can save you a lot of trouble, not to mention a lot of problems. . money later.
For many college students, your first experience with credit will be in the form of a student credit card. These starter cards can help you make purchases, cover expenses, earn rewards, and improve your credit score, but only if you know how to use credit wisely.
Fortunately, we are here to help. If you have questions about student credit cards, building credit, and how to set yourself up for a strong financial future, consider this crash course on how to use credit.
What is a student credit card?
A student credit card is a line of credit specifically designed to meet the needs of today’s students. The best student credit cards help college students build a positive credit history by allowing them to take advantage of the benefits of popular credit cards, such as cash back. Some student credit cards even offer rewards for good grades.
However, the real benefit of a student credit card is the ability to establish good credit at a young age. Since building a good credit history is one of the most important financial steps you can take, the sooner you start, the better.
Minimum age and income for student cards
The Credit Card Act of 2009 effectively prohibited credit card issuers from issuing cards to anyone under the age of 21, making them much more difficult for students to obtain.
If you are under 21, you can only get approved for a credit card if you have a guarantor who is willing to take legal responsibility for any payments made from the card, or if you can prove you have enough money . income to pay off debts.
Very few issuers allow co-signing, but you can become an authorized user of someone else’s credit card, even if you’re still a minor. You won’t have your own line of credit, but you can team up with a parent or guardian and use their credit card to make purchases and build your credit history.
Benefits of getting a student credit card
Among the many reasons to join the adults with the cards in your life, here are the most important ones:
You will have an emergency fallback
You’ve probably been in situations where you had to pay for something on the spot – whether it was concert tickets, a plane ticket, or a mechanic who fixed your car – and you didn’t have the cash to cover it. While too much reliance on credit can get you into trouble, having a back-up plan in the form of plastic can make life easier if you have a plan to pay it off.
You can build credit
Your three-digit credit score plays a huge role in your financial life. Whether you’re applying for a credit card or apartment, signing up for a new hosting plan, or taking out your first car loan, good credit will give you a much better experience, so it’s a good idea to start building one. As soon as possible.
People with a good credit history, which includes any FICO credit score of 670 or higher, are more likely to be approved for credit cards, loans, and mortgages. Those with a higher credit score also tend to be offered lower interest rates, which can save you a lot of money over time. There are even some additional benefits associated with a good credit history – in some cases, for example, your credit history can affect whether you get hired.
Get multiple awards
As long as you accumulate this all-important credit, you can earn rewards for your spending—no annual fees. Two examples include:
With the Discover it® Student Cash Back Card, you can earn 5 percent in a variety of categories that rotate every three months, including Amazon.com, grocery stores, restaurants, and gas stations, and 1 percent in everything else.
The Capital One SavorOne Student Cash Rewards Credit Card gives you unlimited 5 percent cash back on hotel and car rental bookings through Capital One Travel; 3% cashback on restaurants, entertainment, popular streaming services and grocery shopping; 8 percent on Vivid Seats tickets; and 1 percent for everything else.
What to avoid with student credit cards
The main risk of using credit cards is that they allow you to easily spend money and then delay payments. Late payments incur late fees that add up quickly and damage your credit history.
Avoid purchases that you are unable to pay. While some people prefer to have revolving balances on their credit cards, it’s best to develop the habit of paying off your statement balance in full each month.
Why? Because 30 percent of your FICO credit score is based on credit usage, which is the ratio of your current debt to your total available credit. Paying off your debt monthly is a great way to keep your credit score high.
Because students pose a higher risk, student credit cards tend to have higher than normal interest rates (APRs). If you always pay off your statement balance before the grace period expires, you won’t have to pay any interest on purchases.
What to do if you are not eligible for a student credit card
If you are not eligible for a student credit card, don’t worry. There are many more ways to build a positive credit history and access the benefits that a credit card has to offer. Here are a few options to consider:
Become an authorized user
One of the best ways to build credit is to team up with someone who already has good credit. Many college students can benefit from becoming authorized users of one of their parents’ credit cards, allowing them to use their responsible credit habits and start building their own positive credit history.
As an authorized user, you will be able to make purchases, but your parents will be responsible for timely card payments. It’s always a good idea to refund them any purchases you make and then watch your overall credit activity become part of your credit history.
Find a co-borrower
In some cases, you can access a line of credit by asking a parent or guardian to sign a credit card. When a person signs a credit card on your behalf, they are essentially promising to serve as a backup. If you miss credit card payments or accumulate balances that you cannot pay off, your guarantor, who is legally responsible for any charges charged to the card, may be asked to step up and pay off debts.
Only a few credit card issuers allow co-signing, so keep that in mind as you consider your options.
Apply for a secure card
Some college students who are not eligible for a standard credit card can upgrade their qualifications by applying for a secured credit card. When you get a secured credit card, you pay a small deposit—often around $200 or so—in exchange for access to a small line of credit.
To build your credit history, use a secure credit card to make a few small purchases each month. Then pay for those purchases on time and in full every time you need to be billed. If you use your secured credit card responsibly, your credit card issuer may refund your deposit and transfer you to a standard (unsecured) credit card.
Add rent and utility bills to your credit history
Another way for college students to improve their credit history and boost their credit score is to report rent and utility bills to credit bureaus. Services like Experian Boost, which allow you to include bill payments on your Experian credit report, are some of the best ways to get credit without a credit card.
If you’re a college student learning how to use credit for the first time, practicing smart credit moves like this can lead to a better credit card before you know it, and more importantly, a great financial future.