College comes with a fresh start. For many, it’s also the first time they’ve had a taste of financial freedom. But we are rarely taught how to manage our money before then.
When I started college, adults often told me not to open a credit card without first talking to my parents. The reason: The decision may result in long-term debt and some long-term impacts on your finances.
Want to avoid misusing your credit card while you’re at school? Here are five common credit card mistakes college students make.
Not understanding 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 many purchases. When you do, the transactions will appear 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 before the payment date, you will incur interest on the remainder. This means that you will owe more than what you originally spent.
Most credit cards come with a credit limit, which is the amount of money you have available. If you use the card responsibly, the bank will consider increasing your credit limit over time. This helps boost your credit score, increasing your chances of getting approved for more credit cards, car loans, and a mortgage.
Good habits like paying your balance every month, never missing a payment, and staying under 30% of your total credit limit will help in the long run. Just remember to use the increased limit responsibly by charging only what you can pay in full.
Related: How to increase your credit limit
Make purchases without a payment plan
Not having a payment plan when swiping your card can result in interest charges 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 try to pay your balance in full before each payment due date. A low credit utilization rate is the main factor in achieving a good credit score because it accounts for 30% of your overall score.
We recommend using your credit card only when you have a payment plan. Sometimes life happens and paying off your balance in full isn’t always possible. If that’s the case, try to make the minimum payment to minimize interest and avoid late fees.
Choosing the wrong type of credit card
It’s easy to open a credit card without doing your 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 was passed in 2009 to prohibit 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 cash back rewards card or a secured card.
Consider using a cash back rewards card as a discount or incentive. This type of card allows you to receive a percentage of the money you spend. For example, with the Citi® Double Cash Card, you’ll earn 1 point for every $1 spent on purchases and 1 point for every $1 spent on those purchases. There are also no annual fees on the card.
Or, you can choose a secured card that requires a small cash deposit at account opening. The deposit serves as collateral for 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 card.
Among our top recommendations is the Discover It Secured credit card. You’ll get 2% cash back at gas stations and restaurants with no annual fee. Plus, cardholders can check their FICO score for free.
Lastly, you may not choose to obtain a credit card yourself, but rather become an authorized user of a parent’s or loved one’s credit card. You’ll still build credit and have access to the card for purchases or emergencies.
Discover It Secured credit card information has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related: The 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, bedrooms, bathrooms.
Anything you shouldn’t share? Your credit card. It may be lost or confiscated after identity verification on purchases, and you may have an unexpectedly high purchase balance. And as the cardholder, you are responsible for all transactions on the card, even when used by a friend.
Related: How to Identify and Prevent Credit Card Fraud
Do not spend with your card
Knowing everything that can go wrong can scare anyone into avoiding using their credit card altogether. Unfortunately, taking this approach won’t help your score. In fact, it could potentially hurt your score.
Inactivity on your credit card may result in the card being automatically turned off. If you’ve had it for a long time, your score will drop because the length of your credit counts as 15% of your overall score. If it’s not your only credit card and you carry a balance on another card, your credit utilization rate will go up, which will lower your score as well.
Related: We recommend spending on your credit cards at least once every 6 months
Responsible use of your card in college will have a healthy impact on your life after graduation. A good credit score can open many doors for you by showing creditors and lenders that you are responsible with your money.
Establishing good credit as early as possible has long-term positive effects. You’ll be rewarded with better auto and home loan interest rates and lower auto insurance payments.
These are all things that you may or may not be thinking about as a college student, but your future self will be grateful for the steps you are taking now.