For most people who do not have a credit card the reason is that they are intimidated by them and think that they will ruin their finances if they get one. If you are an irresponsible person and already have financial problems than this is probably true. But if you are a student in college then you are most likely responsible, you have a sense of what is smart and what is not smart in regards to your finances, and you understand the value of your time. This is good reason why college students have access to something that the rest of the general public does not have. And that is getting approved for a credit card while having no credit.
Student Credit Cards
Student credit cards are designed for just that, college students. In order to qualify for a regular credit card you need to have some sort of credit history with a decent credit score. And to get approved for a rewards credit card you need to have close to an excellent credit score. Student credit cards allow students to get approved and use them to build up their credit history. Which, if done correctly, will be highly beneficial in the future. Now just because you can qualify for a student credit card doesn’t mean that you will be able to spend all kinds of money and get whatever you want. They come with a low credit limit (most of the time under $500) and can be closed very easily if they are used incorrectly. The key is to understand why you are using a credit card, and that is to establish credit, so that you will be in a better position financially when you graduate.
Your Credit Score
Just like the grades you get in school, your credit score is a reflection on how well you borrow and pay back money. With a credit card you are essentially spending someone else’s (the banks) money and then paying it back at the end of the month. And if you don’t pay your entire balance back then they will charge you interest on what is left. Something that you always want to try and avoid. With the many factors that go into calculating your credit score, the two main ones that you want to worry about with a credit card is that you never miss a payment, and that you stay under 30% of your credit card limit. If you have a student credit card with a $500 limit, use it to spend $150 or less a month (30% of $500) and then go back to using your debit card or cash just like you were doing before. The key is to make sure that you still have $150 left in your account at the end of the month to pay off your credit card bill. If you stick to the plan then you will be well on your way to graduating with not only a degree but an excellent credit score as well.
What Does A Good Credit Score Mean for Me?
Why even bother with worrying about having a good credit score? As said before, once you are out of school getting approved for any credit card with no credit history will be very hard. You will most likely have to get a secured credit card (requires an up front deposit that is used as collateral if you start missing payments) that takes a decent amount of time and effort to get and close once you establish your credit.
The alternative is having an excellent credit score so that you can get a rewards credit card and be rewarded for spending money that you were going to spend anyway. Something a debit card does not offer. Also, say you want to take out a loan to get a new car or purchase a home. Getting approved for a loan with no credit is almost impossible. Having a good to excellent credit score means that you will not only be approved, but you will get a lower interest rate as well. Which will save you a lot of money over the course of paying it back. You may not be worried about any of these things now, but not too far in the future you will realize the benefits of having an excellent credit score far outweigh the little bit of work that it takes to get it there. Your financial life will be a lot easier with already having established your credit than if not.
Your Debit Card and a Credit Card Look Exactly the Same
Take a look at your debit card and a credit card. They look identical. You don’t go out and go crazy with your debit card. And you always make sure that there is money in your account before you spend it. Therefore you can have the same mindset with a credit card. Just stay under 30% of your credit limit and make sure to pay your bill on time, then you will be on your way to an excellent credit score. Trying to get a loan or a rewards credit card without any credit is like trying to get an upper level job without a degree. You already are responsible with your debit card, so why not do the same with a credit card and, just like getting a job when you graduate, be able to qualify for any financial options you may need in the future.
Matthew Coan is a writer for the financial website Casavvy.com. A website where visitors can find all of their options and compare credit cards, checking accounts, and savings accounts.