In a mid-August survey from U.S. News & World Report of undergraduate students, over four in 10 say they currently have credit card debt.
Having a student credit card in college can be an excellent way to build credit, but only if you use cards responsibly.
Survey findings
— Nearly 53% of respondents say they have a credit card account in their own name. And 19% report having access to a credit card as an authorized user.
— About 28% say their credit card debt exceeds $2,000.
— 46% say they got into credit card debt by using their cards on nonessential purchases, such as dining, shopping and impulsive buying.
How Much Credit Card Debt Do Students Have?
While a slight majority have debt of $1,000 or less, 28.2% of survey respondents say their credit card debt reaches $2,000 or more.
Here are the findings:
— Under $1,000: 50.9%.
— $1,000-$1,999: 20.8%.
— $2,000-$2,999: 9.9%.
— $3,000-$3,999: 6.5%.
— $4,000-$4,999: 5.3%.
— $5,000 or more: 6.5%.
In the current survey, 42.1% of respondents say they have credit card debt. In our 2022 survey, 46.1% reported having credit card debt, which means that student credit card debt decreased about 9% in the past year.
[READ: Best Credit Cards for Students]
However, the number of college students who have credit cards has also gone down. In our 2022 survey, more than 67% of students had a credit card account of their own. The 2023 survey shows that 52.7% of respondents have a credit card in their own name, which is a nearly 22% decrease compared with the prior year.
The decrease in student cardholders is likely due to a combination of factors, but one reason probably involves access to credit. A July survey of banks shows that there’s been a recent tightening of consumer credit, including credit cards and personal loans. When lending standards tighten, it’s often those with limited credit or low credit scores who are impacted the most.
How Students Got Into Credit Card Debt
Respondents were asked how they got into debt, and here are the findings:
— Paying for college essentials (books, fees): 49.1%.
— Paying for living expenses (housing): 48.5%.
— Paying transportation expenses: 21.2%.
— Spending on nonessential items (dining, shopping): 24.2%.
— Impulsive purchases: 21.8%.
— Other: 3.2%.
One of the ways students got into debt was by using their credit cards for discretionary expenses, such as dining and shopping, and on impulsive purchases.
Misconceptions About Credit
To gauge how much survey respondents understand credit, they were asked to define common credit-related terms.
— Credit scores: Only 19.3% know that a credit score measures the risk you’ll default on a loan. A little over 12% think it refers to how much you know about borrowing money.
— Credit utilization ratio: Your credit utilization ratio is the amount of credit you’ve used compared with the amount you have available. Only 26.6% of respondents know this. And nearly 18% think it is related to the frequency that you use credit cards.
— Revolving a balance: This is also known as carrying a balance from month to month. Nearly 27% know this means you paid less than the full amount due, but just under 23% say it’s about spending the same amount of money each month. And almost 16% think it means transferring what you owe to a different credit card, which is actually called a balance transfer.
Overall, the responses aren’t surprising for young adults who may have limited (or even zero) exposure to credit and how it works. This lack of knowledge often leads to poor decisions.
[READ: Best Credit Cards for Young Adults.]
Top Credit Card Mistakes — and How to Fix Them
The survey asked students to identify the biggest mistake they’d made with credit cards. Just over 38% of respondents report they haven’t made mistakes with credit cards, which is terrific.
But unfortunately, the majority have made the type of mistakes that can lower your credit score and take years to recover from. Here are three common mistakes that students make with credit cards, what to do about each one and how to avoid it in the future.
Mistake No. 1: Carried a Balance From Month to Month
Almost 24% of students say that not paying their full balance each month was their biggest mistake with credit cards. Credit card balances are subject to compound interest, which can make your debt grow quickly.
How to fix it: Stop using your credit card until you pay off your balance. You can’t get out of debt if you’re still busy increasing your balance. Create a budget that reflects your cash flow and pinpoint which expenses you can reduce. Next, use the extra cash you just uncovered and add that amount to your minimum payment.
How to avoid it: Aside from having a budget, you must track your spending. Your budget gives you a limit on each category, and tracking your spending tells you when you’ve hit your limit. Determine how much you can put on your credit card each month and still be able to pay the balance in full.
Mistake No. 2: Forgot to Pay the Bill
Nearly 19% say they forgot to pay the bill. Payment history makes up 35% of your FICO score, so paying bills on time is a big deal. When your payment is at least 30 days overdue, the issuer could possibly report your tardiness to the credit bureaus. But most issuers wait until payment is 60 days late.
When your late payment is reported to the bureaus, it stays there for seven years. It can also damage your score quite a bit.
How to fix it: As soon as you realize you’ve missed a payment, call the issuer and let it know what happened. If you honestly forgot, it’s OK to say that. But convey that you have a plan to avoid this in the future. If it’s your first offense, ask whether the issuer can waive the late fee.
How to avoid it: Set up email and text reminders about your due dates. If you use a money management tool or an app, it most likely has a way to set alerts for payments that are due. You can also set up automatic payments, but I don’t recommend that unless you’re sure that you’ll have sufficient funds to cover the bills.
[Read: Best Starter Credit Cards for Building Credit.]
Mistake No. 3: Didn’t Know Regular Payments Were Required
Just over 18% of respondents say they didn’t realize they had to make monthly payments. Credit isn’t intuitive. Sometimes, mistakes like this happen because you just don’t know what you don’t know.
How to fix it: Hopefully, you’ve been reading any communication you get from your credit card issuer. Your issuer usually sends you an overdue notice. You may get an email, text, phone call or letter. Call your issuer and say you’re new to credit and will make sure this never happens again.
If you’re over 60 days late, the issuer may have reported your late payment to the credit bureaus. If the issuer hasn’t reported it yet, ask the issuer to show mercy and not report it. You’ll need to make your payment as soon as possible for this to work, though.
How to avoid it: This is a matter of financial literacy. Make it your mission to educate yourself about how credit cards work. There are a multitude of ways to learn about credit, such as listening to podcasts, reading articles on personal finance websites and reading books.
But take note that there’s also a lot of wrong information about money out there. Stick with credible sources you’re familiar with.
More from U.S. News
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What Happens When You Have a Maxed-Out Credit Card?
Survey: Over 42% of College Students Have Credit Card Debt originally appeared on usnews.com
