Credit or debit? This routine checkout line question can feel like a major decision for college students and their families. Many young people shun credit cards for fear of accumulating debt and fees, but responsible use of a credit card can set the foundation for a solid financial future.
Which is right for you? And how can you use credit cards responsibly? College Confidential sat down with Matt Schulz, chief industry analyst at LendingTree, to get some clarity on these issues.
What Are the Pros and Cons of Getting a Credit Card While in College?
Schulz: Good credit is a marathon, not a sprint. The sooner you get started showing that you can handle borrowing money, the better off your credit will be in the future, and a credit card is the easiest way to get started.
Cards for college students often come with lower credit limits than other cards. That allows students to work on building good credit habits without the risk of spending themselves into years and years of debt.
One disadvantage of getting a card while in college is that managing the card can be a challenge. Students are already overloaded with school work and maybe a job. They're getting adjusted to life on their own all that entails. There's just a lot going on, and that means that something like a card payment might fall through the cracks.
How Should Students Evaluate the Various Credit Card Offers?
Schulz: When it comes to credit card offers, the main thing college students should focus on is keeping their costs down. That means paying close attention to the card's interest rate or APR, as well as any fees associated with the card. It's great if a card offers some type of rewards, but finding one with lower APRs and fees is far more important.
It's also important for college students to adjust their expectations as to what type of credit card they might get. That first card is probably going to come with high interest rates, a tiny credit limit and rewards that aren't going to wow anyone. But that's OK because cards for college students aren't meant to be used forever. They should be thinking of training-wheels cards, just used to get the person comfortable with using credit cards so they can move on to something better.
What Should Students Do to Ensure They Use Credit Cards Wisely?
Schulz: The most important thing students need to keep in mind is that they need to pay their bills on time every single time. Deadlines are every bit as important to banks as they are to college teachers. In the same way you get docked points if you turn in that term paper late, your credit will take a hit if you are late with a payment.
Many credit card issuers will forgive your first late payment, as long as you ask them to do so. However, paying late too often is a recipe for credit disaster. Use technology to help you avoid paying late. You can sign up for text notices of your due dates and balances, set up your account with autopay and use other tools that most card issuers offer. These things can really help. And when you pay, don't settle for paying the minimum. Ideally, you'd pay your balance in full each month. Otherwise, you're asking to stay in debt.
The bottom line: When used wisely, credit cards can be a useful tool for students. Choose a card with a low interest rate, pay your balance in full, and automate your monthly payments to avoid racking up late fees or debt so you can build a strong credit history.