Credit cards can have a lot of benefits for those who know how to use them properly. But, for those who don't, it can lead to a lot of financial problems for the individual long-term. When it comes time to decide whether or not you as a college student should have a credit card, there are many things to consider. After all, there are many common credit card mistakes that can happen to anyone, but particularly, uninformed college students can be vulnerable.
Pros and Cons of Credit Cards
One benefit of using a credit card is that it can help you buy something that you don't have the cash for upfront. If you have to buy textbooks, rent a car to move your things into school, or buy furniture for your apartment or dorm, putting it on a credit card can help you make the purchase affordable and even pay for it in installments without interest for several months. Many credit cards also have point programs and travel rewards, and you can earn cash back depending on what you spend. Other credit cards offer insurance benefits, or will give you the opportunity to rent a car,which most debit cards don't offer. Most importantly, credit cards can help you build your credit so that you can have an easier time doing things like renting an apartment, taking out a loan or leasing a car.
But, with all these benefits come responsibilities. Depending on how high your credit limit is, college students (or anyone, for that matter) may be tempted to go on a bit of a shopping spree, and buy things that they either don't need or really can't afford. Unless you pay the statement balance on your credit card each month, you may be hit with a very high interest charge. This can cause you to fall into even more debt and have a much harder time paying off your credit card bills as time goes on.
Common Credit Card Mistakes
Some of the most common credit card mistakes, especially among college students, is that the user does not monitor their spending. They may just swipe away with their credit card, racking up their bill. Most college students don't have a job, and if they do, it's typically not enough of an income to cover credit card bills on top of everything else. Another big mistake, even though it may not seem like one, is that many credit card holders will just pay the minimum monthly payment. This is a problem because if you only pay the minimum, then you will not make a dent in the principal balance owed on the card.
Lastly, many students might be invited by banks to take out many different kinds of credit cards, and opening so many accounts at once can not only be bad for your credit but bad for your finances overall. Credit cards can lead to late payments and a high debt, which can seriously impact your financial future.
Why Credit Cards Are Bad for College Students
Credit cards can be considered "dangerous" for all kinds of people, not just college students. But, one of the reasons they are even riskier for college students is generally because college students do not yet have the financial awareness or responsibility to handle having a credit card. Credit cards should not be used when you don't have the money to pay for whatever it is you want to buy. And, since most college students are living off their parents' support, a loan reimbursement or just a part-time job, then that probably means they are only making the minimum payment on their card, if any. This means that the interest is stacking up in the meantime, and the student will continue to owe a lot of debt, especially once they get out of college and need to add the cost of paying back student loans on top of that.
Should College Students Have Credit Cards?
Although credit cards can be risky, and particularly for college students, this is not to say that college students shouldn't have credit cards at all. Credit cards can be great in case of an emergency, or if they need to buy something immediately but their parents are not around to help at the moment. College students also need to start building up their credit so that they have a healthy credit score and credit report by the time they graduate and want to get their own apartment without needing a cosigner. A credit card can help a college student achieve this, but only if they are responsible with their credit card use and payments.
Tips for College Students with Credit Cards
While it's clear that credit cards can have a lot of benefits for college students, the risk may be too high depending on the person. And, to be frank, it's no secret that many college students are just not ready for that kind of responsibility. But, there are options. One is that parents can add their child as an authorized user on their credit card account. Their child should be held responsible for all the purchases and payments they are making, but it's a good way for parents to keep an eye on it and make sure that their child is not abusing the privilege. However, this can be a risk for parents because it won't help the child's credit score. And, it can actually hurt the parents' credit score if the child is taking advantage of the credit card and not making the necessary payments or maxing out the card.
The other option is for parents to go to the bank with their child, and see what credit card options are available for college students. Some banks have programs like this in which young adults are typically approved for a very low credit limit (perhaps up to $500). This is a great opportunity to practice what it's like to have a credit card and build up some credit, without necessarily going into a lot of debt to do so.
Hana LaRock is a freelance content writer from New York, currently living in Mexico. She has spent the last 5 years traveling the world and living abroad and has lived in South Korea and Israel. Before becoming a writer, Hana worked as a teacher for several years in the U.S. and around the world. She has her teaching certification in Elementary Education and Special Education, as well as a TESOL certification. Hana spent a semester studying abroad at Tel Aviv University during her undergraduate years at the University of Hartford. She hopes to use her experience to help inform others. Please visit her website, www.hanalarockwriting.com, to learn more.