College comes with a fresh start. For many, it is also the first taste of financial freedom. But we were rarely taught how to manage our money before that.
When I started college, adults used to tell me not to open a credit card without first talking to my parents. Why: This decision can lead to long-term debt and some lasting impact on your finances.
Looking to avoid misusing your credit card while in school? Here are five common credit card mistakes college students make.
Misunderstood how credit cards work
Opening a credit card in college can often be a student’s first experience with revolving credit.
You can use the card for multiple purchases. When you do, the transactions will be listed on your credit card statement as a balance. For example, if you spend $250 on groceries, the amount you owe on the card will be $250. If the balance is not paid in full by your payment date, you will be charged interest on the remainder. This means you will owe more than you originally spent.
Most credit cards have a line of credit, which is the amount of money you have available. If you use your card responsibly, your bank will consider increasing your credit limit over time. This boosts your credit score, increasing your chances of being approved for multiple credit cards, auto loans, and mortgages.
Good habits like paying your balance off in full each month, never skipping a payment, and staying under 30% of your total credit limit will help in the long run. Just remember to use your increased limit responsibly by only charging what you can fully repay.
Related: How to increase your credit limit
Purchase without a repayment plan
Not having a repayment plan when swiping your card can lead to interest rates and will negatively affect your credit. As a student, you don’t want to start your credit card journey in debt.
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Always aim to pay off your balance in full by each payment due date. One low credit utilization rate is a key factor in achieving a good credit score as it makes up 30% of your total score.
We recommend using a credit card only when you have a repayment plan. Sometimes, life happens and paying your balance in full may not always be possible. If that’s the case, aim to make the minimum payment to minimize interest and avoid late fees.
Choose the wrong type of credit card
It’s easy to open a credit card without research or even open too many cards without understanding what it means for your wallet. And that’s especially true for college students who may not understand how credit cards work.
The Credit CARD Act passed in 2009 to ban credit card companies from aggressively marketing credit cards to college students, but it didn’t stop students from making common credit card mistakes.
We recommend starting with a cashback rewards card or a guaranteed card.
Think of using a cash-back rewards card as a discount or incentive. This type of card allows you to get back a percentage of the money you spent. For example, with Citi® Double Cash Card, you’ll earn 1 point for every $1 spent on purchases and 1 point for every $1 paid for those purchases. There is also no annual fee on the card.
Or, you can choose guarantee card requires a small deposit when opening an account. The deposit serves as collateral on the account and reduces risk for credit card issuers. If you follow good credit habits, banks may offer to refund your deposit and invite you to apply for an unsecured credit card.
Among our top recommendations is the Discover It Secured Credit Card. You’ll earn 2% cash back at gas stations and restaurants with no annual fees. In addition, cardholders can check their FICO scores for free.
In the end, you may not choose to get your own credit card, but instead become a authorized user on a parent or relative’s credit card. You’ll still accumulate credit and have access to the card for purchases or emergencies.
Discover It Secured Credit Card information has been independently collected by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related: Best credit cards for college students
Allow a friend to use your card
As a college student, you find yourself sharing a lot of things – study notes, dorms, bathrooms.
One thing you shouldn’t share? Your credit card. It may be lost or confiscated after an identity check on purchases, and you may have unexpectedly high balances from purchases. And as the cardholder, you’re responsible for every transaction on the card — even if a friend uses the card.
Related: How to recognize and prevent credit card fraud
Do not spend on your card
Knowing all that can happen can frighten anyone into avoiding using their credit card altogether. Unfortunately, applying this method will not help your score. In fact, it has the potential to affect your score.
Inactivity on your credit card may result in the card being automatically disabled. If you’ve had it for a long time, your score will drop because your credit length counts as 15% of your total score. If it’s not your only credit card and you have a balance on another card, your credit utilization rate will increase — causing your score to decrease as well.
Related: We recommend spending by credit card at least once every 6 months
bottom line
Using your card responsibly in college will have a healthy impact on your life after graduation. A good credit score can open many doors for you as it proves to creditors and lenders that you are responsible for your money.
Establishing good credit as early as possible has long-term positive effects. You’ll be rewarded with better mortgage and auto loan rates and lower auto insurance payments.
These are all things that you may or may not have thought about as a college student, but your future self will be grateful for the steps you take now.
