College students kicking off the academic year may notice an abundance of student credit card offers around this season. Thinking about getting a card? Start here!
Credit Card vs. Debit Card
The first step to understanding credit cards is knowing the difference between paying with debit and credit. When you pay with a debit card, the money instantly comes out of your checking account. It’s just like using cash, without the hassle of carrying around a ton of paper bills. When you pay with a credit card, no money changes hands – at least, not yet. You’re basically giving out IOU slips, and at the end of the month, your credit card statement will show what you owe.
While you don’t need to pay off your credit card balance immediately, it’s a good idea to try. If minimum payments aren’t made, interest will be added to your balance and you could find yourself owing far more money than you’ve actually spent.
Why Get a Credit Card
Getting a credit card is an important step to building credit. Even if you get a card and only use it a few times, this will still help you to develop a strong credit score – assuming you make payments on time. With a good credit score, you can qualify for better loan terms and interest rates in the future.
Credit cards also offer more theft protection than a debit card, meaning that if your card is stolen you won’t be responsible for fraudulent charges. Another benefit to spending on a credit card as compared to a debit card is that you can usually earn rewards, travel points or cash back. Finally, many people like to carry a credit card in case there’s an emergency and they need quick access to more money than is available in a checking account.
With all the benefits of having a credit card, it’s still very important to talk about smart ways to use it. When credit cards aren’t used wisely, they can lead to huge amounts of debt.
To avoid debt, track credit card spending closely and never spend more than you can afford. Try to think about your credit card like a debit card and budget as though any money spent on a credit card has already left your bank account. You can set up auto-transfers to automatically settle your credit card statement every month, which is a great option as long as you’re careful to keep enough funds in your checking account.
What Card to Choose
As a student with limited credit history, you may need to choose a secured credit card, which requires an up-front deposit. If you don’t pay your bill, the card issuer can recoup those funds from your deposit. While it’s possible to get an unsecured card if you have bad credit or no credit history, be careful as these "special offers" often come with high fees.
Other factors to consider when choosing a student credit card include interest rate, fees, and perks such as cash back or other rewards. Of course, an important option to keep in mind is that you might not need a credit card at all. Be realistic about your spending habits, what you can afford, and how you plan to use your credit card smartly if you do decide to get one.
How to Qualify
Every credit card has different considerations on who qualifies. As a student, be aware that you may need to show proof of income or payment history, which can be done through pay stubs, utility bills and so on. In general, if you don’t qualify for a particular credit card then it’s probably not the right card for you! Look for a student card that offers simple terms and will help you build a strong credit history, without piling on tons of fees in the meantime. Some great rewards like cash back on all purchases or travel perks don’t hurt either!