Many credit card companies offer cards targeted towards college students. These student credit cards often come with easier qualifying requirements as well as generous perks like credit card rewards and bonus welcome offers that make them attractive to young people.
However, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, prohibits college students from getting a credit card without a cosigner who is over 21 and has the means to repay the debt — unless the college student can show they’d have sufficient income to pay back what they borrowed.
If you can meet these requirements, getting a credit card could be a smart move — but it could also be a financial disaster. It all depends on what you do with the card. Here’s what you need to know.
Opening a credit card account as a college student could be a great choice because you can start building credit with it.
See, you will need to have access to credit in order to develop a credit history. And you’ll need to use your credit responsibly to earn a good credit score. If you get a card as a freshman in college and use it wisely, by the time you graduate, you’ll end up with a four-year history of on-time payments. Since your payment history is the most important factor in determining your score, this could make a big difference in your ability to build one that makes it easy to get affordable loans after graduation.
The average age of your credit history also affects your score, and having a longer credit record is better. Opening a card early on in life will allow you to start establishing that credit record sooner, which will have a long-term positive effect on your score.
As a bonus, you will also get to take advantage of cardmember perks. Let’s say you charge $500 a month on your card for basic expenses you’d incur anyway and you get 2% cash back as a rewards bonus. At the end of 12 months, you’ll have gotten $120 in cash back. That’s a lot of money for many college students — it could even cover the cost of one or two overpriced textbooks!
Unfortunately, getting a card as a college student could also turn into a disaster. That can happen if you don’t use your card wisely.
If you charge too much on the card and can’t pay it back, you could graduate with credit card debt that haunts you for years to come — especially since you’ll have to pay interest on most cards at a high rate (the average interest on a card as of August 2023 was 21.19%).
If you miss a payment, you could also start off with a poor payment history — which would do major damage to your credit. And if you use more than 30% of your available credit (which may not be hard if you have a student card with a low limit), that could hurt your score as well. Your credit utilization ratio plays a big role in determining your credit score.
If you have a cosigner and you charge too much or miss payments, this could hurt their credit as well — which isn’t a great way to repay someone who did you the favor of cosigning in the first place.
You’ll need to take these factors into account and consider whether you trust yourself to use credit responsibly before opening a card as a college student. If you don’t think you can count on yourself to charge only what you can afford to pay back — and to make payments on time, every time — then wait until you’re in a better place before getting a credit card of your own.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
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