While focusing on rewards and perks can make picking your first credit card exciting, the biggest benefit to opening a student credit card is getting to build your credit from scratch. By starting to build credit before graduation, you can put yourself in a position to take advantage after school.
Read on for some tips to help you make the most of one of these cards and budget effectively as a student.
- Make a budget and stick with it
- Spend only what you can afford to repay
- Understand APR
- Make on-time payments
- Stay on top of your credit
1. Make a budget and stick with it
If you’re not tracking your finances, you won’t know if you’re running up more debt than you can handle. So before you do anything else, make sure you have a good idea of how much money you have coming in and going out each month.
To create your budget, start by listing your monthly income, including income from any jobs you have as well as anything your family provides for you. Then, list your monthly expenses, like food, school supplies, gas and car insurance.
Use a budget calculator to put together an estimated monthly budget to help you achieve your goals. Do you want to save up for a purchase, add to your emergency savings or simply stay out of debt?
Then, consistently track your finances. Here are a few ways to do that.
- Use a tool to record your expenses so you’ll be more conscious of your spending. Get them down in a spiral notebook, an Excel spreadsheet or in your Notes app — whatever works for you.
- Deposit cash and checks directly into your bank account as you receive them.
- Open all bills as soon as they arrive (or when you get the alert) and pay them immediately.
- Use only one credit card while you learn how to build credit.
Following these guidelines can help you avoid putting charges on your card that you can’t pay off.
2. Spend only what you can afford to repay
To start creating the best credit card habits, plan on paying off your balance on time and in full each month. Interest rates on student credit cards can be high, and carrying a balance from month to month could end up costing you much more than what you earn in rewards.
3. Understand APR
The annual percentage rate on a credit card is essentially how much it costs you to borrow money. It’s important to know this because when you charge a purchase to your credit card and don’t pay off your statement balance by the payment due date, it accumulates interest. But if you pay off your statement balance each month, you won’t pay interest on that balance — thanks to what’s known as the grace period.
Generally, credit card companies offer a grace period for new purchases. This period is the gap between the end of your card’s billing cycle and the date your payment is due. With most credit cards, if you pay off your statement balance in full and have no outstanding cash advances, you won’t be charged interest on new purchases during the grace period.
Heads up though: If you make only the minimum payment every month, you could be inviting debt. For example, for a $1,000 balance with an APR of 21%, it’ll take about five and a half years to pay off the balance, and you’ll pay about $662 in interest.
Make sure you know the following details of your card:
- Where to find your statement balance
- The date your payment is due
- The purchase APR and penalty APR
- The date your introductory APR ends (if applicable)
4. Make on-time payments
Late payments can hurt your credit scores. Create reminders for your due date or set up automatic payments.
5. Stay on top of your credit
Building and maintaining good credit can take time. So it’s a good idea to build good habits early, like keeping your credit utilization low and checking your scores and reports regularly. You might even find some errors, which you can dispute with the bureaus.
FAQs about student credit cards
Yes, it’s possible to get a credit card as a college student. Some credit card issuers make cards specifically designed for students. If you can prove your enrollment in college, they tend to have lower credit and income requirements, along with lower credit limits on the cards. College students may also want to consider secured cards, which require collateral. Both secured cards and credit cards designed for students can be easier to qualify for if you don’t have a long credit history.
Yes, you can build credit with a student credit card, but there are some things to know. First, you need to know whether the card reports to the three major consumer credit bureaus. These are the entities responsible for collecting the data that feed into your credit reports and scores.
In order to build credit, you must be careful about the way you use your card. That means paying your bill on time, every time. Ideally, you’d also keep your credit card utilization ratio below 30%.
On the flip side, missing payments or using a huge amount of your available credit lines can harm your credit. Applying for a ton of new credit can lead to lots of hard inquiries, which can also damage your credit temporarily.
If you have very little credit history and are a student, it may be easier to qualify for a student card than a traditional credit card. Some also have perks geared specifically toward students, like a reward for good grades or credit education resources. Student credit cards tend to have lower credit limits than traditional cards.
Yes, applying for a credit card can hurt your credit. When you apply for credit products, like credit cards or loans, the issuer will likely check your credit. This is called a hard inquiry, which can lower your credit scores temporarily.
Though student credit cards tend to be a little easier to qualify for than some other credit cards, there are no guarantees. Everyone’s credit profile is different. If you’re worried about qualifying, you may want to look for cards that allow you to prequalify without a credit check, which is helpful while you’re shopping around for a credit card. Know that even if prequalified, you’ll typically still have to submit a full application, triggering a hard credit inquiry, before being approved.