Short on time? ⏰ Let us take care of your FAFSA filing hassle-free! Let's get started.
Get started
Thinking of getting a credit card? Here's why it can be a good thing!
So, you are thinking of getting a credit card? That’s great. Contrary to popular belief, credit cards CAN be very healthy for your financial growth. Let’s face it we live in a debt driven society! And once you use your credit card wisely, in my opinion, the benefits definitely outweigh the bad. But I stress, (notice I used italics, so I am really stressing here) as long as you use a credit card properly.
Today we are going to go over the benefits and drawbacks of using a student credit card, as well as the best methods for responsibly establishing credit. Perhaps your goals include raising your credit score, increasing your cash-back or travel-rewards earnings, or both. Or maybe you have heard credit cards may be a major source of financial stress and are therefore wary of using one.
Before we get started, Vincere Wealth Management has a great blog on how to choose your first credit card that will definitely help you understand credit cards better! So feel free to check it out.
Credit cards for students can have both positive and negative effects. Assuming you put them to good use, they can put you ahead of your classmates economically by the time you graduate. But if it isn't used right, it can cause problems that last for a long time.Does that mean you should stay away from them? No, not at all. But you should know how they work, and how to use them correctly.
Many student credit cards do, in fact, come with generous perks like cash back on purchases or miles that can be redeemed for free flights. These benefits can make it possible to go on trips and make purchases that might otherwise be out of reach.
It works pretty similar to coupons, for example, a credit card that pays you 5% back on all purchases functions very similarly to a coupon for 5% off your entire purchase.
Here are 60+ Best Student Discounts to Use in College During 2022
When applying for a cell phone contract, apartment lease, mortgage, or vehicle loan, a good credit score can be a deciding factor. Loan approval and interest rate are both impacted by this factor. Over the course of a 30-year mortgage, having a high credit score can save you thousands of dollars in interest costs. Even if you don't think a prospective employer will, they probably will. A low credit score could result in a rejection of your job application.
If you apply for (and responsibly use) a student credit card while still in school, you can improve your credit standing and have a solid score by the time you graduate. Reason being, you'll be able to improve your credit score by adding positive information (such timely payments) to your credit report.
Credit cards offer a layer of security that other payment methods, such as cash and checkbooks, do not.
If someone gets their hands on your debit card information, they can empty your bank account in a flash. However, if your credit card number is stolen and used, you can dispute the charges.
If you make a purchase but the store accidentally charges you more, getting your money back is simpler. If there is a problem with your credit card, simply call your card issuer. When using a debit card, any remaining balance is immediately forfeited.
Although student credit cards have certain benefits, they can be quickly lost if the account is not managed properly. The following are some outcomes that may occur in that case.
It's simple to run up a credit card balance and merely pay the interest. You could fool yourself into thinking you're doing well if you consistently pay at least the minimum due each month. However, if that's all you pay each month, it could take years to pay off your debt, and you'll end up paying a lot in interest fees.
Remember, it’s a loan and loans can rack up interest. It’s not money to just go on shopping sprees and lose track of your budget etc. So, ensure that you pay this loan back every single month.
Note: A good rule of thumb, would be to pay the full amount each month. You never have to worry about paying interest EVER this way.
Read more here:6 Ways To Prevent College Credit Card Debt
There are a few ways that having a student credit card could hurt your credit history and can rack up debt. The biggest risk comes from not making payments on time.
Even a few days late on one payment can do a lot of damage to your credit score. For seven years, information about late payments stays on credit reports.
A big part of your FICO score is how much debt you have compared to how much credit you have available. Your "credit utilization ratio" is the amount of your available credit that you are currently using. If you use a big chunk of your available credit, your credit score is likely to be lower. That being said, it's best to put off getting a credit card if you know you won't be able to handle the responsibilities of paying it off each month or if you think you'll be tempted to spend more than you can afford.
…but if you can… and I think you can…here are some tips to use your credit card the RIGHT way.
One major perk of credit unions is their often cheaper credit card interest rates. However, without work experience, students may struggle to meet eligibility requirements. This person may need to have their parent or legal guardian add them as an authorized user.
Read more: Best Credit Union Credit cards
Students can get a leg up on building credit and opening their first independent accounts by becoming authorized users on their parents' or guardians' accounts.
Always make a monthly full payment on your credit card balance. The number one guideline of credit card use is to make monthly payments in whole and on schedule. If you just remember this one piece of advice, you'll be fine! That's literally it!
Carrying a balance from one month to the next is a dangerous financial habit to fall into as previously mentioned. This could come back to haunt you if you acquire your first real job after graduation and your credit limit rises. It's inevitable that this will lead to financial hardship. So start developing the habit of paying it back in FULL. Without carrying a load, you can still reap the benefits of credit card use, like rewards, consumer protections, and improved credit.
Major hack here: Signing up for automatic credit card payments is one of the best ways to make sure you always pay your credit card bills on time! You may relax knowing that your monthly credit card payment will be made without any further effort on your part by opting for this hands-off method.
Keep an eye on your monthly payments to be sure they haven't gone up unexpectedly.
We mention this quite a few times in our blog so you know the drill! Always, always have a budget. This is after all the backbone of financial success. And this includes what you plan to use your credit card each month for.
If you make a spending plan aka a budget, you can put your mind at ease knowing that every dollar is being put to good use. It's still a good idea to develop the practice of budgeting even if you don't have a credit card. Without carrying a load, you can still reap the benefits of credit card use, like rewards, consumer protections, and improved credit.
One of the best ways to build credit is to get a student credit card. For example, if you manage your credit card well and pay it off in full every month, you will never have to pay interest. This is not the case with student loans. It helps you build credit for free.
Note: You should consider becoming an "authorized user" on the account of a parent before you get your own credit card. This lets you build a credit history without having to open your own account and risk losing money. You can benefit if your parents have good credit.
Save up three to six months' worth of living costs in a liquid account that earns interest. So, if you lose your job or have a big expense that you didn't plan for, you won't have to borrow more than you can afford to pay back. You already have that cash-on hand.
One easy way to save for an emergency fund is to have your bank set up regular transfers into a savings account.
Recap: Before you think about getting a credit card, make sure you already pay your bills and utilities on time. If you don't, you could hurt your credit score, even if you don't have a credit card.
Secondly, think about adding yourself as an authorized user to the bank account of a parent or guardian. This is a great way to start building credit. Being an authorized user also lets you take advantage of credit unions' lower interest rates and better terms than those of commercial banks. After considering all of your options, a student credit card may be an excellent option if you still want to establish your financial independence.
College students can benefit from using credit cards. No other method is more effective for initiating the credit-building process. Also, obtaining your first card while still a student is far simpler than obtaining one after graduation. Getting a student credit card and responsibly using it can be a tremendous boost to your financial future, but only if you're ready for it now and can practice these habits!
Are you ready to open an account for your credit card? Speak with one of the advisors at Vincere Wealth to find out where is the best place for you to open and BUILD that credit score starting today!
.png)
.png)
.png)
.png)