Building good credit is important if you want to eventually qualify for low loan and insurance rates. The best way to start building your credit is to get a credit card as a college student and begin using it responsibly.
Unfortunately, many students see their new plastic as free money and wind up graduating with debt alongside their degree. Make sure to avoid these common credit card mistakes college students make.
1. Applying for the wrong card
You’ve seen commercials for ritzy credit cards that will give you free flights around the world or gobs of cash back. I’m sorry to break it to you, but you won’t qualify for those cards yet.
Those reward cards are only for people with great credit, and as a young person likely getting your first credit card in your own name, you have to establish good credit first.
Don’t start off by applying for a fancy American Express rewards card. Apply for a student card.
Sure, some of them may not have rewards or special perks, but if you can prove you’re capable of using them responsibly — meaning keeping your balance low and always paying your bill on time — you will build good credit.
Before you know it, you will be able to qualify for the credit card of your dreams.
2. Getting more than one card
Many adults juggle multiple credit cards. Sometimes it’s because they want to take advantage of multiple reward programs, or they want discounts at certain retailers.
Other times they are financially overextended and need a lot of credit to get by.
Regardless of their reasons, when you’re in college, you don’t need multiple cards yet.
Instead, focus on using your new student card wisely and getting used to the responsibility that comes with a piece of plastic in your wallet.
Some students handle this responsibility just fine, while others look at it as free money and bury themselves in debt for superfluous purchases.
Focus on using your card to build good credit for your future rather than as a way to live beyond your means. Having only one card will help rein in that temptation.
“Credit cards aren’t intended to
regularly help you make ends meet.”
3. Not using the card
You can’t build good credit by just having a credit card in your name — you have to actually use it. While keeping a low balance is a good thing, having no spending activity won’t show your smart credit usage.
Make sure to use the card on occasion to show activity. If you don’t really need the card, create a habit of putting a purchase on the card once a month and paying off the balance right away. It could be you use it once a month on groceries or a meal.
Using the card and then paying your bill on time will help you establish good credit.
4. Relying too much on the card
On the flip side, using credit cards too frequently can end up harming your credit. Carrying a high balance, especially one close to your credit limit — or even worse, maxing out — are marks of irresponsibility.
It’s one thing to use a credit card to buy a meal because you are low on money and will get paid in two days and can then pay off your balance. It’s another to use a credit card to live a lifestyle you can’t afford.
It’s not free money. It’s a loan you have to repay with interest.
You must remember credit cards are tools to help you get credit and rely on in a major emergency. They aren’t intended to regularly help you make ends meet.
If you find yourself not being able to make it through the month without putting expenses on your credit card, it sounds like you need a new part-time job.
You will regret it if you leave college saddled with thousands of dollars in credit card debt.
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