With a credit card, you could overspend, fall behind on payments, and end up in debt. Without one, you might have trouble renting an apartment or purchasing a car. Given the catch-22, it’s no wonder that so many young adults are unsure about whether or not to apply for their first credit card.
Below, we’ll walk you through some of the benefits of credit cards and signs that you’re not ready for one to help you answer the question, should I get a credit card as a college student?
Why College Students Should Get Credit Cards
College students who are disciplined, financially responsible, and employed can benefit from applying for and using a credit card in college. Credits offer college students many benefits, including helping you to:
Build a good credit score
A FICO credit score, once you have one, ranges from 300 to 850. As a young person, it’s possible you don’t have a credit score, let alone a good one. Applying for a credit card, using it, and making on-time payments will help you build your credit score. A good credit score makes borrowing money, renting cars, leasing apartments, and even getting jobs easier, and in some cases, less expensive.
To make sure the credit cards helps and doesn’t hurt you:
- Only make purchases that you can afford based on your income—not based on the credit limit
- Always make your monthly payments on time
- Use less than 30% of your available credit
Establish credit history
The three credit bureaus evaluate your length of credit history when calculating your credit score. Length of credit history is simply how long you’ve had lines of credit open (like a credit card or a loan). It looks at the age of your oldest account, your newest account, and the average age of all accounts. In general, the longer your credit history, the better. Length of credit history makes up 15% of your credit score.
Learn to budget
If you’re not in the habit of budgeting your money, a credit card will encourage you to learn. You’ll need to know exactly how much you have coming in and out each month to keep up with monthly payments. A high interest rate acts as a good incentive to keep you on budget.
Read our college student guide to finances and budgeting for budgeting tips.
Rent a car
Most car rental agencies require a credit card for same-day or any type of car rentals. For example, Enterprise always accepts major credit cards but only accepts debit cards in certain situations.
The reason is that a credit card ensures the rental agency will receive payment should any repairs, parking tickets, speeding tickets, traffic fines, or extra mileage used cost more than the security deposit. With a debit card, there might not be enough money in the account to cover the expense.
You might not think you’ll ever need a rental car, but what if you and your friends decide to fly somewhere for spring break and rent a car. What if your car breaks down, or you get in an accident and need reliable transportation to work? Unexpected situations could arise where you’ll be thankful you have a credit card on hand to rent a vehicle.
A good credit score will make leasing a car easier too.
Rent an apartment
Landlords often run a credit check before approving a lease application. Establishing a credit score with a credit card can make it easier to find housing after your college graduation. If you don’t have a credit score, you might need a parent to cosign your lease for you.
Buy a house
Lots of college graduates delay purchasing a home while they pay off their student loans. You don’t have to do that, though. It’s possible—and often cost-effective—to buy a home even if you have student debt. Getting a credit card in college can help you establish your credit and build your credit enough to meet or exceed minimum borrowing qualifications for first-time home buyer loans. Then, when you’re ready to buy, you’ll qualify.
Signs that You’re Not Ready for a Credit Card in College
Credit cards are a useful financial tool with plenty of benefits. However, not everyone in college is ready to handle the responsibility that comes with being a credit cardholder. Some signs that you might fall into that category include:
You’ve run into trouble with money in the past
Do you have a history of overspending? Think overdrawn bank account, shopping sprees that got out of hand, or going overboard with mom or dad’s “emergency” credit card. If any of those scenarios sound like you, you might want to wait a bit before applying for a credit card. Work on budgeting the money you have and consider
You struggle to pay the bills you currently have
Have you fallen behind on your car insurance, phone, or utility bills? If so, focus first on making enough money to stay current on those bills. You don’t want to add a credit card bill into the mix.
You’re not bringing in any income
Not only will you have trouble being approved for a credit card without any income, but you’ll have a hard time paying it off too. If you don’t have a job or other source of income, having a credit card might be too tempting. It’ll feel like you have money to spend, but in reality, you don’t.
Credit Cards for College Students
College students who feel confident they can handle a credit card should focus on credit cards designed for college students. Typically, college student credit cards or starter credit cards don’t have annual fees, have low credit limits, and approve students and/or those with low or no credit.
Here are a few you might consider:
Wells Fargo Cash Back College Card: Like Discover, the Wells Fargo card has no annual fee. You earn 3% cash rewards on select purchases for the first six months and then 1% cash rewards on all purchases.
BankAmericard Travel Rewards for Students: This Bank of America card gives you 1.5% rewards on every purchase with a 10% bonus for current banking customers. There’s no annual fee or foreign transaction fees, so it’s a great option if you want to study abroad.
Before applying for a credit card, read through the fees and rates, features, and associated FAQs. It’s important that you understand what you’re applying for so that you’re prepared if approved. Once approved, download the associated app (if it exists) to make managing your account and making payments easier.
Other Ways to Build Credit as a College Student
If you’re hesitant to apply for your own credit card, you can still establish and build credit as a college student. Check out these ideas:
Make payments on your student loans
Borrowing and paying off your student loans builds your credit too. Taking out a loan establishes your credit history and making regular payments will help you raise your credit score.
Of course, if you don’t need a student loan to pay for your education, don’t go apply for one. Any credit-related benefits of student loans do not outweigh the negatives. Plus, just as making on-time payments is good for your credit score, missing a payment is bad for your credit score. It’s not a risk worth taking on unless loans are an absolute necessity.
Become an authorized user on someone else’s credit card
You can build your credit by being added as an authorized user on another person’s credit card account. As they make purchases and payments, you’ll slowly build credit even without using the credit card. Of course, this method only works if:
- The credit card holder is responsible and makes all regular payments
- You’re old enough to be an authorized user based on that card’s terms and conditions
- The card company reports authorized users to the credit bureau
If you decide to go this route, it’s not without risk. Just like this strategy can build your credit, it can also bring it down if the person fails to make on-time payments.
Put utilities in your name and make on-time payments
Utility providers sometimes report payment history to credit bureaus. If you live at home with your parents or with roommates, you could transfer one of the utility bills into your name. Choose a bill that you can afford to stay current on. If it’s being reported, as you make on-time payments, you’ll establish and slowly build your credit.
Pay your rent on time
Depending on where you live, making on-time rent payments might help your credit score. Some corporate landlords report your payment history to the credit bureau. Some independent landlords might too.
If your landlord isn’t already reporting your on-time payments, you could find a rent-reporting service to report your rent payments. Some of these services cost money, so weigh the pros and cons before paying to have your rent information reported.
So, Should I Get a Credit Card as a College Student?
Financially responsible college students who work will enjoy the many benefits of getting a credit card at a lower risk. If that’s you, a credit card—even if only used for occasional small purchases—is a wise idea.
If you don’t work and are still working on becoming financially responsible, hold off on applying for a card until you feel confident that you can handle the responsibility. Consider taking a personal finance course online or from your college. Check out some of these articles too: