Just before the recent financial crisis, it was incredibly easy for college students to open multiple credit card accounts while still in school, before they ever received their first paychecks. This “free for all” often led to significant financial problems for many students once they graduated – just at the time when they were the most financially vulnerable.
But the Credit CARD Act of 2009 made it much more difficult for credit card companies to let students open new charge accounts. In general, a student must now either demonstrate an independent source of income or get a cosigner on the account before they could obtain a credit card.
In light of this new credit environment, here is some credit card advice that college students may wish to follow.
Get One When You Don’t Need It. It might seem a bit counterintuitive, but the best time for a college student to try to get a credit card is when they don’t need it. When a student needs some additional cash for their expenses, having a credit card in their pocket makes for an all too easy solution that will end up costing a lot in interest charges in the long run. On the other hand, a student who doesn’t need the purchasing power can be selective in their credit card use, and only make charges that they know they’ll be able to pay back quickly.
Don’t Use it Unless You Can Pay Off Your Entire Balance Each Month. In fact, the best advice is for a college student to only use their card when they know they can pay off the entire balance in full at the end of the month. Put another way, try not to use your credit card unless you already have the cash to buy something. Paying off your balance each month will save a significant amount in interest charges, and demonstrate creditworthiness.
Think Long Term – Not Just the “Sign Up Bonus.” College students should think long term when it comes to the consequences of their credit card use. Paying off their balance each month will save money and boost their credit score. But it’s also worth giving long-term considerations some thought when you were first signing up for an account. If you have a choice between several cards, don’t make your decision based on who offers the best sign-up bonus. Instead, look for cards with the lowest interest rates and lowest (or zero) annual fee.
Consider “Piggybacking” on Your Parents’ Account. If you’re under age 21 and unable to secure an account based on your own financial record, you may wish to consider “piggybacking” on a parent’s credit card account. Piggybacking is a perfectly legal technique that allows a student to build their own credit score by becoming an authorized cardholder on the parent’s account. Since they parent has complete visibility into what the student purchases on their account, this might also help the student to avoid bad purchasing decisions.
The college years are generally regarded as the last stage before many individuals find themselves fully responsible for their own financial health. By following a few simple rules for using credit cards while still in college, students can make sure that they start off their independence in the strongest possible position.
Just before the recent financial crisis, it was incredibly easy for college students to open multiple credit card accounts while still in school, before they ever received their first paychecks. This “free for all” often led to significant financial problems for many students once they graduated – just at the time when they were the most financially vulnerable.