Credit Card Advice Every College Student Needs

Making the wrong decisions about credit cards can get college students in trouble. Image source: Getty Images.

When I started college more than 15 years ago, credit card companies had booths all over campus offering all kinds of incentives, including free swag, to sign up for a credit card. Marketing to college students was incredibly common, because many young people would get credit without understanding the implications -- and often stick with their credit card for many years to come.

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 changed the rules on creditors, though -- in large part because all of this marketing to college students was leaving young people deeply indebted before graduation. The CARD Act restricted the types of marketing card issuers could do and made it more difficult for college students to qualify for credit cards.

While this led to a drop in the number of college students using credit cards, a study conducted by Sallie Mae into college student finances still found an estimated 56% of college students do carry cards.

Having a credit card isn’t necessarily a bad thing -- in fact, it can be good idea to have a card to help you build credit. But it’s imperative you make the right choices when it comes to applying for and using credit cards.

To help ensure that college students don’t make financial mistakes that could end up costing them, here’s some key advice on credit cards that every college student needs to know. 

Having a credit card can help you build credit

If you've seen friends or parents go deep into debt, then shying away from using a credit card could seem like the smartest approach. Unfortunately, this is actually a bad idea because you need to have credit to build credit.

Your credit score is determined by several different factors, including the average age of your accounts and your history of on-time payments. If you get a credit card as soon as you can in college, you’ll start establishing a credit history ASAP. You’ll have a history that shows up when potential landlords, employers, auto lenders, or mortgage lenders look at your credit after college -- and you’ll have a longer credit history than if you’d waited.

As long as you’re responsible with your credit cards and make payments on time, you can also start establishing that all-important history of on-time payments that’s so fundamentally important to determining your an excellent credit score. You don’t need to carry a balance to develop a positive payment record, so just making a small purchase every month and paying it off is sufficient.

It's important to choose the right credit card for your needs

Although there are stricter rules for credit card companies marketing to college students, chances are good you’ll still receive at least some credit card offers. The important thing to remember, though, is that these credit card companies don’t care if you’re a good fit for their card -- but you should.

There’s a vast difference between terms and conditions on different credit cards. Some cards have generous rewards programs, others don’t. Some charge an annual fee, others don’t. Some charge foreign transaction fees, others don’t. You want to make sure you select the most affordable card for your situation, and -- if you’ll take advantage of the credit card rewards program -- you also want a card that rewards the spending you do most.

The card’s APR should be the top priority if you ever expect to carry a balance, because interest charges can cost far more than any benefit you earn from claiming rewards. Look for the lowest possible APR unless you’re confident you’ll always pay your card off in full.

Beyond a low-APR card, you’ll likely also want one that doesn’t charge an annual fee. While there are cases where generous rewards and perks make paying an annual fee worth it, this isn’t usually the case for college students, who probably don’t spend enough to make the rewards programs pay off.

If you do opt for a rewards card, make sure you pick one with bonus rewards that match the type of spending you do -- and with rewards you’ll actually want to claim.

Use your card responsibly

When you have a credit card, you need to be absolutely certain that the card doesn’t lead you into a debt trap you can’t escape from. This means using it in the most responsible way possible.

To use your card responsibly, avoid charging more than you can pay off in full at the end of each billing cycle. Carrying a balance is incredibly expensive and should be avoided at all costs!

Don’t let your friends use your card, because you could get into big financial trouble if they don’t pay you back as promised. Don’t max out your card, as using more than 30% of your available credit could hurt your credit score. And always pay your credit card bills on time, as a late payment could stay on your credit report for years and cause a dramatic drop in your credit score.

Avoid cash advances and understand credit card terms

As a cardholder, it is your responsibility to understand the agreement you have with your card issuer. This includes understanding added costs and fees you may incur.

For example, one of the most important things to know is that you’re generally charged fees and a higher interest rate if you take a cash advance. While it might seem tempting to use your credit card to access cash, this is something that should be avoided at all costs. Check your cash advance interest rate and the fees your card issuer charges for cash advances to understand why.

You also want to know other key terms and conditions. For example, what behaviors -- such as paying late or exceeding your card’s limit -- would trigger a penalty APR? A penalty APR is a very high interest rate. And will you be charged a foreign transaction fee if you use your card abroad? If so, how much is the fee?

By understanding all of the terms of your card, you can avoid costly mistakes and make sure you don’t trigger penalties by violating your cardmember agreement.

You also don't want to apply for too many credit cards

Finally, while it’s good to have one credit card, there’s no reason to have too many. Each time you open a new credit card, you get an inquiry on your credit report that stays on your report for as long as two years. Too many inquiries will damage your credit score.

Having multiple credit cards also increases the temptation to overspend and makes it more likely you’ll end up in debt. Not to mention that managing all those cards is a challenge, so you could find yourself missing payments by mistake -- which you want to avoid. If you have just one card to keep track of, you limit the trouble you can get into and keeping on top of your account is much easier.

Being responsible with credit in college is essential

The actions you take with credit cards in college could affect your financial future for years to come.

Building a positive credit history and using credit responsibly can help set you up for later financial success as your high credit score can help you to get approved to rent an apartment or to get a mortgage and car loan at an affordable rate. On the other hand, mistakes with your credit cards could make adulting more difficult if you get denied for loans or have to pay more for the privilege of borrowing money.

Fortunately, now you have the advice you need to make smart choices when it comes to your credit. Get a card, use it responsibly, and pay it back in full every month, and you’ll be doing your future self a big favor.