First Credit Card? Six Tips for College Students
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College students have a lot to think about, and personal finances often take a backseat to coursework and extracurricular activities. But building a strong credit file is an important stepping stone to financial independence, and there are steps your college student can take now to positively impact his or her credit score.
“It’s really important to build a good credit history, especially for a younger adult,” says Andrea Browne, channel editor for Kiplinger.com. While it may be hard for a college student to imagine that the things he or she is doing right now will have an impact on finances down the line, it’s important to for him or her to understand that they will, says Browne.
Using a credit card wisely can help build a strong credit score. This is important because scores are usually checked when a person buys a car, rents an apartment, or applies for other credit cards or loans. By establishing good credit during the college years, your student will be off to a solid financial start on graduation day.
Consider these six tips for building credit:
1. Use credit cards responsibly. “One of the quickest ways to build up your credit score and your credit history is through smart credit card usage. That means you’re making credit card purchases, such as buying gas or groceries, and making sure that you pay the bill on time every month,” Browne says.
Even one or two late payments can affect a person’s credit score. If possible, pay the entire balance due each month, or at least pay more than the minimum due. And don’t max out a credit card—if you use too much of your credit line, you may lower your credit score.
2. Consider starting with a retail card for a specific store. “Retail cards are generally easier to qualify for, and they also help you establish a credit history just like a major credit card,” Browne says. “A retail card, as long as you are using it responsibly and paying the bill on time, will help prepare you for bigger expenses later in life.”
The downside, she adds, is that retail cards can have low spending limits and high interest rates, so your student could end up with high fees if he or she misses a payment.
3. Open a secured card. A secured credit card requires you to make a cash deposit equal to the card’s credit line. This deposit is used as collateral toward the account. “The deposit amount for a secured credit card can range from a couple hundred dollars to a couple thousand dollars, which is much more manageable for someone in college or just starting out in [his or her career],” Browne says.
Using a secured card responsibly can make it easier to qualify for an unsecured card (a traditional credit card that does not require a cash deposit). Comparison shop and review each option’s annual fees, application fees, and other charges.
4. Look for the best rates and lowest fees. You and your student may want to review the options for both secured and unsecured cards. Avoid cards with excessive balance transfer fees or late fees, Browne says, and look for annual percentage rates of under 15 percent. “A lot of times, the best rates are reserved for folks with the highest credit scores,” she notes. “You’re probably going to have to start out with whatever interest rates they give you.”
If your student isn’t able to get a great rate right away, he or she can continue to positively impact his or her score by making all monthly payments on time. Your student can also consider periodically checking in with the credit card issuer to see if it will lower his or her current rate.
5. Talk to your local bank. If you have a checking account or savings account at a bank, ask if it has a bundle deal for a credit card—a good option for a college student with limited credit history, Browne says.
Bundling can involve packaging a savings or checking account with a credit card, retirement account, consumer loan, and/or certificate of deposit. Before deciding to bundle accounts, your student should review each one individually and compare fees and prices to non-bundled accounts.
6. Read the fine print. A lot of us have a habit of not reading the fine print, Browne says, but it’s something your college student should do before applying for any credit.
“You should know the specific terms of the agreement, the annual fee, the interest rate, and the reward benefits, if any,” she recommends. Make sure your student checks closely to see if the interest rate will rise after a fixed period of time or after late payments.
By using credit cards responsibly, your college student can build a credit history and positively impact his or her credit score, setting the stage for a successful financial future.
A Chicago-based writer and editor, Eve Becker writes about personal finance, health and other topics. She is a former managing editor of Tribune Media Services.
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