When I was 20, I decided I wanted a new car. I had a perfectly good car, yet I was already succumbing to lifestyle inflation. After a quick joy ride, I was ready to trade in my used one, but the car dealership had other plans. He regretted to inform me that since I had no credit established, I was not approved for a large auto loan. My checking account was happy, but I was sad after that blow. I didn’t understand how one could have no credit. Where did it even come from?
Credit cards are a great way to establish your credit while in college. Thanks to the Credit Card Act of 2009, there are laws that help protect consumers, especially young ones, from getting into too much debt, too quickly.
While credit cards in college are still a sore subject for some, they don’t have to be when used correctly. As a matter of fact, student credit cards can help you as a young adult in more ways than one.
You’ll establish credit history
One reason a student should open a credit card while in college is to start building a credit history. A credit report consists of a number known as your credit score, which shows lenders what kind of risk you are as a borrower. Your credit score is determined by what is in your credit history, such as the length of accounts, loans you have taken out, and any bills you may have turned over into collection. Every line of credit opened or closed either adds or takes away points based on the history of that account.
If you have no credit history, your score will be very low or even non-existent. If you do not have a credit history, it will be harder to secure lines of credit needed for auto loans or any other significant financial purchase.
By opening a student credit card, you get a chance to start your credit history off on the right foot.
The longer you have an account in good standing on your credit report, the higher your score will be. As a result, when you graduate college, you will be able to secure a loan that much easier.
You’ll establish good money habits
Opening a student credit card is a way to establish good money habits as a young adult. It’s essential to develop good money habits as early as you can because it only gets harder to do so when you’re older. Credit cards are not free money, so they should not be treated as such. Anything you put on a credit card you must pay back, even if something happens to you (such as losing a job or source of income).
However, there are perks to using your credit card as a money management tool. Most credit cards you will be approved for will have a smaller limit than, say, one you can apply for when you’re older. Because of this, the chances of you maxing out your limit sooner than later is very probable.
By paying attention to your spending, you can be sure not to max out your credit card.
Monitoring your spending is also a good way to start learning how to live within your means and follow a budget. Learning these skills as a young adult, along with paying your bills on time, will only be setting you up for success in life after college and beyond.
Credit cards can prepare you for the real world
We’ve already discussed above how credit cards can help you establish good money habits, but that is just one way credit cards can prepare you for the real world.
When you graduate college and are looking to start your career, chances are you may be applying to work for different organizations. Depending on what your career path is, potential employers may ask to see your credit report.
By already establishing your credit history and having an open line of credit for a few years, your employer will know you are responsible and can handle working with finances, if needed.
This is more appealing to them than seeing someone with bad or no credit. Just like that, you’re already a step above the rest.
A healthy credit history will also enable you to be more successful living on your own for the first time (e.g., when looking for an apartment or roommate). When you apply to live somewhere, you are submitting to both a background and a credit check.
It’s understandable your landlord wouldn’t want a convicted felon in their apartment, but if you have bad credit, that’s another strike against you. Some landlords deem derogatory marks as proof you are a risk as a tenant due to lack of financial responsibility. While it may not seem fair, it does happen – and quite often.
It will also allow you to purchase a car more easily and fulfill any other loan requirements you may need for big purchases.
You can get points and discounts
Most major credit card companies have some incentive programs that offer consumers the chance to earn points eligible for redemption, for example, for cash back, airline miles, hotel stays, and gift cards to stores of your choice. Such points, discounts and gifts are earned by enrolling in their program and paying for items you were going to buy anyhow, such as groceries, gas and entertainment.
While some incentive programs are cash back on all qualifying purchases (often a list that is provided), others offer points to be used towards travel or gift cards. Usually, for every dollar you spend, you are awarded a certain number of points or cash back. Cash back is usually awarded once you hit a certain cash out limit or a certain time period of the year. Points can be traded in for items of your choosing, once you hit the point amount needed for said item. All of these can essentially be free just by paying your bill, in full, on time and without it acquiring interest. Way better than using your debit card, right?
When you are a college student, every little bit helps. Cashback could mean a free textbook or a special meal out. Gift cards could be buying yourself a special treat or a present for your mom’s birthday. And airline miles can be used towards visiting your family for the holidays. If that’s not your thing, there is always Cancun for Spring Break.
Credit cards can also mean discounts and opportunities to purchase show tickets, among other things, before the general public.
When I was attending Arizona State University, a lot of stores near our campus would give you a discount if you used your Sun Devils Credit Card. This card was issued by the bank located inside of the university, with which many local stores had a partnership.
Universities aren’t the only places to receive exclusive discounts and deals. As a Capital One credit card holder, I was able to purchase tickets to see the Foo Fighters before they went on sale to the general public. This meant I was able to get the best seats I could comfortably afford without having to worry.
Сredit cards can help with emergencies and the unexpected
In a perfect world, everyone would have an emergency fund or savings to help them out. But, life does happen. Emergencies I’ve experienced are car repairs, emergency dental work, other medical copays, a new phone, and vet bills for a very sick cat.
While I did have an emergency fund to cover some of these expenses, my cat’s vet bills were still more than I had tucked away. Rather than being financially strapped for cash, I opted to open a credit card to help with his medical expenses. Now if I have a sick cat, I know I can always go to the vet no matter what. I can also use this credit card for other financial hiccups when they come my way.
Credit cards do not take the place of an emergency fund or any other savings you may have, but they can help.
If you are a college student and miles away from someone who could assist you, a credit card may mean a lot more than you might think.
The bottom line
It is ultimately up to you if you decide to get a credit card while in college. Some people may not think it’s a good idea, but these people are usually the ones who do not know how to use credit cards properly or are against them in general.
By using credit cards while a student, you are setting yourself up for financial success in the future. You will also help to establish your credit history early on so when you graduate from college, life will be a lot easier. Not only will you be able to secure an auto loan at a low rate, but you will also be able to refinance student loans to help you save more money in the long run.
Credit cards can be a great financial tool, so utilize them wisely!