11 Things College Students Should Know Before Opening a Credit Card

Getting your first credit card is a big step and with the right knowledge you'll be on your way to having great credit and plentiful rewards in no time.

College is a great time for financially responsible students to start learning to use credit cards. Credit cards can enable students to make purchases, build credit and even earn rewards. But credit cards can be a confusing concept for a first-timer.

Here are eleven things all college students should know about their first credit card.

1. It Can Help Build Your Credit …

Credit cards are important credit building tools, as card activity is typically reported to credit bureaus and included on your credit report. Over time, credit cards can help you establish an excellent credit score. Excellent credit can help you secure loans, land better interest rates and even reduce common monthly payments.

2. … If You Use It Correctly

Credit cards only help your credit when they’re used wisely — irresponsible use can severely damage your credit. To successfully build your credit, you’ll need to start and stick to smart credit card practices. These include making payments on time, maintaining a low balance and keeping accounts open over time.

3. It Isn’t Free

The credit limit on your credit card isn’t a budget for your next spending spree. Any purchase you make on your credit card will accrue interest if isn’t paid off in time. Plus, credit cards charge additional fees, which may include annual fees, foreign transaction fees and late payment penalties. Pay close attention to the annual percentage rate (APR) and fees for any credit card you’re considering.

4. Missed Payments Have Consequences

If you miss a payment or make a late payment, your credit card issuer may charge you a late payment fee. You might get slapped with a penalty APR that’s much higher than the interest rate you signed up for. That missed payment could even land on your credit report and bring down your credit score for up to seven years.

5. There Are Options if You Have No Credit

If you have no credit history, you can still qualify for certain types of credit cards. One of the best options is a secured credit card, which requires a security deposit upfront but then works just like a traditional credit card. You could also have a trusted family member add you as an authorized user to their credit card account.

6. You Should Pay More Than the Minimum

While it’s tempting to only pay the bare minimum each month, it’s wise to pay a little more. Minimum payments won’t significantly reduce your balance, and you may wind up paying a lot in interest over time. To completely avoid interest, you should pay off your balance in full each month. This means you shouldn’t charge more than you can afford to pay.

7. Applications Can Harm Your Score

When you apply for a credit card, the ensuing credit check (known as a hard inquiry) may land on your credit report. Hard inquiries can ding your credit score a few points but aren’t damaging in the long term. There is a risk in submitting too many applications over a long period of time, so you should try to limit your credit card shopping to a two-week period.

8. Use Rewards Wisely

Many credit cards earn rewards, such as cash back or travel points, as you spend. These rewards can be extremely valuable, but only if you use your card correctly. For instance, cash back cards are less valuable if you carry a balance month-to-month, as interest will eat into the profitability of your card. The way you redeem rewards also varies from card to card, so you’ll want to pick a card that actually provides rewards you’ll use.

9. Not All Cards Are Created Equal

Some credit cards are specifically designed for college students and offer security features, rewards and programs that benefit the fledgling credit card user. Take a look at student-focused credit cards, as they may be more accessible to you and have student-friendly policies. Some of these cards have certain requirements when it comes to credit scores. Before applying for any new cards, it’s wise to check if you will qualify by reviewing your credit scores. You can check two credit scores for free on Credit.com.

10. It Doesn’t Have to Be Exclusive

Your credit card will help build credit whether or not you use it religiously, so don’t feel obligated to use it for everything. You can keep it in case of emergencies or for the occasional purchase.

11. There Are Security Benefits

Credit cards offer a number of security benefits over cash and debit cards. They aren’t tied to your bank account, and you’ll never be responsible for more than $50 if your credit card is stolen. Plus, credit card companies often offer additional security features and monitor your account for suspicious activity.

Image: GeorgeRudy

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How to Choose Your First Credit Card

Picking your first credit card can seem overwhelming, but by keeping in mind a few key tips, you'll be able to make the right decision with confidence.

Whether you’re a teenager without credit history or an adult who’s familiar with loans and debit cards, choosing your first credit card can be tough. The prospect of finding a card may seem overwhelming, but with the right knowledge, you’ll be able to choose the right card and begin building your credit. Here are several things to consider when choosing your first credit card.

1. Do Your Research

Be aware of what getting a credit card entails, especially because credit mistakes can negatively affect your life and financial standings for a long time. Whether you’re scouring the Internet, speaking with a credit expert or reading our site, it’s important to learn as much as you can before taking the plunge. Being well-versed in the process of applying for and using credit cards will benefit you in the long run. Don’t skimp on research.

2. Ensure You Have Steady Income

Credit card issuers typically require a verifiable income when someone is looking to apply for their first credit card. After all, being able to repay your balance is the key to getting approved for a credit card. Lenders need to know that you’ll pay them back and that they can trust you. Federal law requires that adults under age 21 have income before they can be approved for a credit card without a cosigner. So if you’re a young adult, consider getting a part-time job so you don’t have to find someone to cosign.

3. Choose Wisely

There are plenty of credit cards to choose from. It can be overwhelming to sort the possibilities. While searching, focus on your main concerns and struggles. Are you worried about paying bills on time? Consider a card with a low annual percentage rate. Aren’t sure you’ll have enough self-control for a credit card? A secured credit card could be a great option. There’s a credit card that works for everyone. Don’t choose a credit card because of a cool design or dreamy rewards without checking all of the details.

4. Read the Fine Print

Before you choose your first credit card, make sure you’ve read the terms and checked the fees, rewards and interest rates. A bad combination of card features could come back to bite you if you aren’t careful when signing up for a card. 

5. Consider a Secured Credit Card

Speaking of secured cards, they’re a great option for your first card for several reasons. (Not sure what a secured card is? This article explains it all.) As long as you pay responsibly, your score goes up, and you can switch to an unsecured, card. Some secured cards give you cash back, or offer no annual fees. Your deposit acts as your credit limit, so if you can only pay a security deposit of $200, you’ll have a $200 limit. Having a lower limit shouldn’t be an issue, though, because you’re just starting out with credit. 

Barry Paperno, a credit expert who writes for Speaking of Credit, says a secured card is the way to go for first-time credit card owners. “You can build a really good credit score with just a secured card,” Paperno said. “Plus, because of the security deposit, you won’t have an unpaid charge-off at the end.”

6. Avoid Cards That Require Excellent Credit

Being denied credit doesn’t affect your credit score, but your score is still affected by lenders looking into your credit history. If you apply for your first credit card and it’s out of reach, you’ll end up stuck in a loop of hard inquiries and rejections. “Most card lenders won’t even give you an unsecured card if you have no history,” Paperno said. If you’re not sure where your credit stands, check out your free credit report snapshot on Credit.com.

7. Use Loans to Your Advantage

Essentially, a positive loan history can show card issuers that you’re low risk and are capable of paying them back on time. Loans count as credit, so if you pay them back responsibly that positive information will remain on your credit report for 10 years after being closed. Conversely, a negative loan history will stay on your report for seven years. A loan that’s closed won’t help generate a credit score, but it still looks good to lenders on your report. (For more on loans and their connection to credit, visit our Loan Learning Center.)

8. Become an Authorized User 

A great way to get your first credit card while limiting the responsibility and pressure is by becoming an authorized user. Paperno recommends this as a simple way to build your credit score. This way, you can have a credit score without actually having your own credit card. If you eventually want your own card, being an authorized user makes your score and report look significantly better to lenders.

But remember — if the person whose card you’re becoming an authorized user on falls behind on payments your credit will be impacted as well. Choose someone you trust with a good credit history.

Ultimately, choosing your first credit card is a big decision but an important one. Remember to take the time to research and find which option is best for you when opening your first credit card and every card that follows.

Image: PeopleImages

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