Everything you do in college is a factor in how your future will play out. From the classes you choose and the major you declare, to the friends you make and how you balance your schedule… there are so many variables. But did you know that your financial activity while in college is a factor as well? How you spend your money and where it comes from can play a crucial role in your life during and post-college, so what can you do to control it? Where does the fun money come from? How will you afford books? What happens if you run into car trouble? How do you afford weekend activities with your friends?
Well, aside from the obvious answer of applying for a part-time job, you may consider getting a credit card. College is the perfect time for any young adult to apply for their first line of credit because it is the prelude to adult life. Once you graduate, your financial responsibilities will increase and you will need to purchase big ticket items. With said new responsibilities comes the need for a good credit line. The earlier you start to establish it, the better… as long as you don’t abuse it.
So, why not take advantage of your four university years and get a student credit card? Before making the big decision, consider these pros and cons!
Pay Later, Not Now. Credit cards in a nutshell. This line item easily falls under both the pros and the cons, depending on how you treat the gift that is a monetary loan. Let’s face it, with college comes recreational and sometimes irresponsible spending. It can be very easy to buy into things like dorm decorations, booze and take-out, and very hard to say no to a good time when all of your friends are doing activities that cost money. Having a credit card as a back-up plan makes it easier to enjoy yourself without worrying about your lack of cash flow.
Fun aside, it’s also key for emergencies. You never know when you’re going to get slapped in the face with an unexpected charge that you simply don’t have the money for. Cars break down, college books get more expensive by the year, and if you’re living off campus, utilities can go through the roof in the chilly winter months! Credit cards make it easier to drop a larger sum of money without depleting your bank account. Just be sure to pay the money back as efficiently as you can!
Build Your Credit. This is the doozey. Many young adults don’t start building their credit until they move out of mom and dad’s house and begin their higher education. Creating a credit score… a GOOD credit score… is vital to your future financial activity. Good credit plays a role in renting apartments, purchasing cars, homes, insurance rates, and more. So, while you may not be ready to do some of these things, your diligence will pay off in the future. Building credit takes time, and starting in college is a great way to get your feet wet and establish a presence early on.
Rewards. A good credit card can pay you back for the money you spend. Say what? Yes, you can essentially get stuff for free, if you choose the right card and treat it well. Cash back, gift cards, travel miles (good for flights, hotels and some transportation!), gas and more! Some credit cards even offer reward/discount programs for university students.
Buy Anywhere and Be Secure. Credit cards can be used across the globe and often have added bonuses such as low or no foreign transaction fees. They also decrease your chances of getting your identity or cash stolen, as compared to the trickier debit card. Additionally, they allow you to make secure purchases over the phone or online.
Interest. This is one of the biggest downsides of having a credit card in general, not just in college. If you spend what you don’t have and what you can’t pay back, you could end up paying more in interest than you ever did on actual transactions. As a college student, you are more likely to get approved for a credit card with a higher than average APR. This is because you have little to no credit history to show banks that you are reliable and will pay them back for their loan. If you maintain a balance, you will be charged interest on the total. However, if you pay off your balance each month, you can avoid paying interest on your purchases.
Tip: Apply for a credit card with a 0% introductory APR. This will give you time to pay off big purchases without additional charges, while getting used to paying your credit card bill each month.
Poor Spending Habits. It’s too easy to overspend when you’re not relying on cash. Credit cards offer an ease of spending which is often an abused luxury. Save your credit card for the “musts,” not the unnecessary items.
Late Fees. If you don’t meet your minimum monthly payment, you could be charged late fees which often amount to upwards of $25. Add late fees to potential interest and you’re looking at money you never had to spend.
Bad credit. With interest and perhaps late or absolute minimum payments comes bad credit. Many young adults confuse their credit card allowance as “free money,” forgetting that it is simply a loan that they will have to pay back one day. All credit card cons lead to bad credit which can negatively influence big financial moves such as applying for loans or buying a car or a home.
But I am only in college, I don’t plan to buy a house for years!
Bad credit can take ages to repair. And by ages we quite literally mean YEARS. Stay on top of your payments and don’t maintain a large balance. Only spend what you can afford!
Less Savings. You do the math! If you get hit with interest and late fees – payments that you wouldn’t have had to make if you were on time or didn’t overspend – you will have less money to drop in your savings account!
Take these pros and cons into consideration before applying for a student credit card!
Read more tips for first year students that help you surviving University.