There are many important lessons to learn in college about your career of choice, how essential teamwork can be, and, perhaps one of the most important, becoming financially responsible by building your credit. Getting a student credit card might just help you achieve that.
In truth, every important decision you make helps to build your future. Financial decisions will be particularly important and will help build your credit history, which will start to give shape to your credit score.
Getting and using your first credit card, if done responsibly, is the best way in which you can start to build both your credit history and score. Now, before you complete an online application, there are certain aspects that you should keep in mind which will help you understand the importance of building and protecting your credit.
1. Many employers will check your credit score.- It is very likely that a potential employer will run a credit check on you before he or she makes you a job offer, regardless of how well it went during the interview and even if your references all check out. This practice is common in about 39 states.
2. Renting an apartment will be easier- After moving out of the dorm, you are going to need a place to live, and renting is the logical choice for people who are starting out. Your landlord or landlady will want to run a credit check too. They want to make sure that you pay your bills on time. In many cases, having a good credit score will also mean paying a lower deposit on the rental property and might reduce the renter's insurance premium.
3. Getting a car loan will be easier- Every 30 days, the bank electronically reports your spending and payment behavior to all three credit bureaus. This information will build your credit history and score. Thus, when you apply for a loan, the financial institution that is considering extending you credit will base its decision partly on your repayment habits.
To successfully build your credit history and score, use your card wisely. Ideally, you should aim to pay in full all the purchases made in a given billing cycle.
Until about a decade ago, banks would send out credit card offers to students and would approve them for credit without a co-signer or proof that they could repay the debt. This changed with the 2009 Credit Card Accountability Responsibility and Disclosure Act. Today, to get approved for a credit card, if you are younger than 21, you are going to have to get a responsible adult to serve as your co-signer, or you are going to have to submit written proof of income.
Now that you know how important building and protecting your credit is let’s look at some of the advantages of getting a credit card.
Purchase Protection- If an item you bought is not working the way it should or if it’s stolen, some credit card companies will help you replace it. You won’t have this extra protection if you use cash or a debit card for the purchase. This is not a green light to purchase everything you want with your credit card. Remember that building your credit is the goal.
Extended Warranty- Some banks will offer an extended warranty for items that you purchase with their credit card. However, not all cards extend an item’s warranty and some items are not covered. Read your card’s extended warranty policy to learn which purchases are covered.
Theft and Fraud Protection- Having a credit card means that you won’t have to carry cash with you. Also, if you lose your card or stolen, you can freeze your account, and you won’t be held responsible for unauthorized purchases.
Rewards Program- Many credit cards have some type of program that rewards you when you make a purchase. The most popular rewards program is getting a cash back bonus for purchases made. Other cards give you a bonus for having good grades or pay for Amazon Prime Student. Some financial institutions even offer credit monitoring as part of their reward program.
Right before you apply, make sure that the card is the right one for you. Think about what purchases you’ll make, which rewards program you prefer, and select accordingly. Also, read your card’s terms and conditions, never make a purchase that you cannot pay in full on the due date unless it is an emergency.
Do not apply for more than one card. Since you are starting to build your credit history, having an additional card might not be such a good idea. The most practical option is to apply for one card and use that to make small purchases that can be paid in full. This behavior will be reported to all credit bureaus, and your credit score will increase.
When you finally get your card, use it wisely. In order to build credit, you do need to use the card. Ideally, you should use it for small and recurring purchases that will be reported to the credit bureaus as paid in full and on time.
While there are tips that will help you build your credit by getting and using a credit card, the truth is that you need to be smart and responsible about how you use it. So, ask yourself if you are ready for the responsibility of managing a credit card. If the answer is yes, check our 1o Best Credit Cards for Students review to help you decide. And remember, using your card responsibly will make it easier for you to eventually rent an apartment, get approved for a car loan, and down the line, get a mortgage.