With the summer fast approaching, some students will be getting ready for graduation, while others will just be glad for a break before the fall semester. But, with all of the knowledge and studying that students do during the year, there is one thing that most don’t know much about, and that is credit cards; not to mention the fact that being a college student gives you access to something that most people do not have. You’re able to get a credit card while having little to no credit history. For a normal person with this history, they would most likely have to apply for a secured credit card, which requires them to put money down up front. After a decent amount of time and responsible use, then they can apply for a regular credit card and go about getting their initial deposit back from their secured credit card.
By being in college, you can be approved for a student credit card without having to put down a deposit or jumping through any hoops. As time goes by and you show that you can use a credit card responsibly, you can apply for a better, possibly more rewarding credit card, without any problems.
Your Credit Score
The main reasons to get a student credit card are to start out and to improve your very limited credit history and credit score. Just like your grades in school, your credit score reflects how responsible you are with money and how well you pay back money that you borrow. There are two types of credit: installment and revolving. An example of installment credit is your student loans; you borrow a certain amount of money and promise to pay back a set amount each month until it is paid off. Revolving credit is, for example, a credit card. The amount you spend each month changes, and you have to pay a minimum amount each month or you are charged interest on what is left over, unless you pay it off in full (which is what you should always do).
By utilizing your access to a student credit card, you can prove that you are responsible with revolving credit and improve your credit score in the process.
Why Do You Need a Good Credit Score?
At some point in your life, you will probably want to buy a home, and you will most likely need a mortgage in order to pay for it. The interest rate you are charged on the money you are borrowing will depend on how good your credit score is. The lower your score, the higher interest rate you will pay.
In the future, you may also see an offer for a rewards credit card that you think would be beneficial to you and/or your family. In order to be approved for a rewards credit card, you need to have good credit; otherwise you will be stuck using your debit card or basic credit card, and earning no rewards in the process. Just like your degree, your credit score will be with you for the rest of your life. The difference is that your college classes will end at some point and your grades will be final. You have to keep working on keeping your credit score up for the rest of your life.
I Don’t Have That Much Money, So What Use Will a Credit Card Be?
Using a student credit card to help start and improve your credit score has nothing to do with how much money you spend. Chances are your student credit card will come with a credit limit well under $1,000. In no way does this mean that you need to spend $1,000 every month. In fact, you should always stay under 30% of your credit limit, no matter what credit card you have (this helps improve your credit as well). Just make sure you pay back the balance on your card each month. Find something that you already have the money for, use your credit card to buy it, and pay it back at the end of the month. All you are trying to do is prove that you can pay back money that you are borrowing. It doesn’t make a difference how much it is.
Many people, especially students, are intimidated by credit cards, and think that they will end up with a ton of debt if they get one. Almost everyone today uses a debit card linked to their checking account to make purchases. You wouldn’t go out and spend all the money in your checking account for no reason, would you? No. So why think you would do so with a credit card? Use it to spend money you already have, and remember what you are doing in the process. You are improving your credit score so that in the future you will have more financial options if you need them. It is easier to get a credit card while you’re a student than to start looking after you graduate. Then you will be able to graduate with a new degree and an excellent credit score to match.
This article was contributed by guest author Matthew C.