Getting a credit card as a student can help you build your credit score, earn rewards and establish good money habits — if you use your card responsibly. This means sticking to your budget and paying off your balance in full each month to avoid interest charges. Spending past your means, on the other hand, could harm your credit and lead to high-interest debt. By understanding how to use your credit card wisely, along with the pitfalls to avoid, you can build a strong financial foundation that will benefit you now and in the future.
[READ: Best Credit Cards for Students]
Is It Good to Get a Credit Card as a Student?
There are a lot of positives to getting a credit card as a student. For one, opening a credit card can be a smart first step toward building a good credit score. “Student credit cards are an excellent tool for building a credit history,” says Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling. “By using the card and making on-time payments, you are demonstrating to lenders that you’re a responsible borrower.”
Along with making payments on time, keeping your credit utilization low will also benefit your credit score. A good credit score is essential for many future milestones, including taking out a loan, renting an apartment, applying for certain jobs and opening another credit card with a higher spending limit.
A student credit card could also give you access to funds in the event of an emergency and may make it easier to conduct certain transactions, like booking a rental car or paying for a hotel room. Plus, it can help you earn rewards, such as travel points or cash back, as you hone the skills of responsible spending and budgeting.
“Treat your student credit card like a financial training ground, meaning the habits you build now will shape your financial life long after you graduate,” says Debtosh Banerjee, president of the credit building program Seen.
Pitfalls of a Student Credit Card
A student credit card can help or harm your finances, depending on how you use it. If you make late payments, your credit score could take a serious hit. Late payments can stay on a credit report for up to seven years.
And if you spend more than you can afford to pay off each month, your balance will start racking up interest charges. Credit card interest can add up quickly — the average rate is more than 22%, according to the Federal Reserve.
“Easy access to credit can lead to an early dependence on borrowing, which, when combined with future student loan debt, could create a significant financial burden,” says McClary.
According to McClary, setting spending limits and practicing discipline are key. “Create guardrails to ensure you use the card conservatively and avoid overspending, preventing yourself from falling into a cycle of debt,” he says.
[Read: Best Secured Credit Cards.]
Smart Purchases to Make With a Student Credit Card
Some purchases are better suited to a student credit card than others. Try to stick with small, predictable expenses that you can pay off in full each month.
“Good examples include regular, manageable bills like a monthly subscription service, a tank of gas or a one-time purchase like a textbook,” says McClary. “Using the card for these items allows you to build a payment history without accumulating interest.”
Some other examples are gym memberships, public transportation, school supplies and groceries. Overall, you want to stick with regular, affordable expenses that are easy to track and budget for — and won’t cause you to carry a revolving balance.
What to Avoid Putting on Your Student Credit Card
Using your credit card for pricey, unaffordable purchases could harm your finances.
“I would recommend avoiding expenses like large impulse purchases you can’t repay in full, and shared group charges that may not get reimbursed,” says Banerjee. “Remember, the goal is to charge what you can pay off monthly — that’s how you can stay out of debt and build your credit.”
Before swiping your card, consider whether the expense is a want or a need. Purchases like entertainment, vacations, restaurant meals or expensive tech could drive up your credit utilization and lead you down the path of credit card debt.
[READ: Best Credit Cards for No Credit.]
Tips for Using Your Student Credit Card Responsibly
Here are some more tips for using your student credit card to boost your financial health.
Make Your Payments on Time
Credit cards require you to make a minimum payment each month to keep your account in good standing. This amount may be 1% to 4% of your balance or a fixed amount, like $25 or $35.
Your payment history makes up 35% of your FICO credit score. On-time payments will help build your score over time, while late payments will cause it to dip. Consider setting up automatic payments on your credit card so you don’t miss any bills. If you don’t use autopay, set calendar reminders on the days your payments are due.
Pay Your Balance in Full Every Month
Although making minimum payments will keep your credit card account in good standing, paying off your balance in full is the wiser move. Credit cards come with an interest-free grace period of 21 days or longer after your bill is due. If you pay off your full balance each month, you’ll avoid interest charges, which can add up quickly and cause your debt to balloon.
“The key is to treat the card as a tool for building habits, not as free money,” says Banerjee.
Keep Your Balance Low
According to the Financial Counseling Association of America, college students who carry a credit card balance owe $2,088 on average. But if you want to build good credit, you’ll likely want to keep your balance much lower.
Not only will keeping your balance low help you pay off your card in full each month, but it will also reduce your credit utilization. Credit utilization refers to the amount of credit you’re using compared to what’s available to you and has a big impact on your credit score.
Aim to keep your credit utilization under 30% of your credit limit. For example, if you have a credit limit of $1,000, you’d want to keep your balance at or below $300.
Stick With a Single Card
While you’re a student, one credit card is likely sufficient to meet your spending needs. Applying for lots of cards at once can rack up multiple hard credit inquiries, which can be harmful to your credit score.
Plus, it could be tough to keep track of payments across multiple cards as you balance everything else on your to-do list. Try to stick with one card as you get the hang of using credit, budgeting your money and paying your monthly credit card bills.
[Read: Best No-Annual-Fee Credit Cards.]
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Using Your Student Credit Card Responsibly– What to Spend On and What to Avoid originally appeared on usnews.com
