Even though college campuses aren’t the playgrounds they used to be for card issuers recruiting customers, a lot of consumers still get their first credit cards as students. That means a lot of first-timer mistakes people make with credit cards coincide with a time in their life when they are just getting familiar with (or haven’t quite grasped) the concept of managing their own finances.
That combination can be messy and potentially put new grads at a financial disadvantage when trying to start their careers. Despite that risk, it is a good idea to establish a credit history early, and using a credit card while you’re a student can be a great way to start. Here are the mistakes you (or a someone you know) will want to avoid when using a credit card as a student.
1. Opening Too Many Cards
There are a lot of advantages to using a credit card: You’re essentially getting interest-free short-term financing if you charge items and pay your balance in full by the due date, and lots of credit cards offer useful discounts and rewards. Once you start enjoying these perks, it can make you want more, but the more cards you have, the more complicated your finances can get.
“That can be tricky especially when you’re a student and you’re moving and aren’t staying on top of your due dates,” said Gerri Detweiler, director of consumer education for Credit.com. Setting up automatic payments can help keep you organized and avoid late payments, but the student bank account is often one that’s low on cash. “The only thing about automatic payments is you have to make sure there’s enough money in the account,” Detweiler said. Otherwise, you risk an overdraft and the fee that often goes along with it.
Having a lot of credit cards and not spending a lot of money on them can help your credit score (a low credit utilization rate is good for your credit), but having so many cards you miss a payment will outweigh that benefit. Making loan and credit card payments on time is the most important thing to building good credit, so you don’t want to jeopardize that.
2. Sharing Cards
You may not consider how important it is to protect your credit card information until it’s been misused. If you give your roommate, boyfriend or girlfriend your credit card to make a purchase once or twice, don’t be surprised if you find out they used it for something you didn’t approve, Detweiler said. New credit card users, particularly students, tend to learn that lesson the hard way.
“If you’re going to buy something for someone, don’t give them the card to make the purchase,” Detweiler said. Go with them to buy the item, do it on your own or just turn them down. Handing over a credit card isn’t the same as handing over cash, and while it may be uncomfortable to say no, it’s better than the alternative: being liable for purchases you didn’t make.
The biggest trap student credit card users fall into is failing to understand the impact of their debt. If students rely on their parents for money, they may form spending habits in college that will be unsustainable when they’re on their own. Additionally, planning to pay off credit card debt when you get a job can be a lot harder than expected.
“It’s easier to focus on the minimum payments,” Detweiler said of this common mistake. “Along those lines, I think part of it for students is feeling like, ‘Oh well, once I get out and get a job it will be easy to pay off these balances.’ When you graduate with a lot of debt, it can limit your choices in terms of work and where you can live and other things you want to do.”
Add that to the student loan debt most students graduate with, and all of a sudden that paycheck you were counting on isn’t going to be enough to make ends meet.
In general, it’s important to pay your credit card balances in full if you’re capable of doing so, in order to avoid spending a lot of money on interest and using a lot of your available credit. That’s a particularly helpful strategy when you’re just starting to manage your own finances and build credit, like many students are. Regularly checking your credit score helps put these lessons in perspective: You can get two free credit scores through Credit.com every 30 days, and you’ll see how on-time payments and low debt levels help your credit scores.
More on Credit Cards:
- The Credit.com Credit Card Learning Center
- 6 Smart Credit Card Strategies
- How Secured Cards Can Help Build Credit