Why Should College Students Have Credit Cards? Benefits and Tips

When you go to college, you're experiencing many things for the first time–having roommates, cooking for yourself, and attending your first college football game. When navigating the financial world as an adult, you'll want to consider getting a credit card, creating a budget, and managing your cash flow.

A credit card can help you learn the ins and outs of credit, plus help you establish a credit history. And a good credit history can help you establish a good credit score. That's because the information from your credit history–your debt load, payment history, types of credit you've used, and length you've had your accounts open–is used to calculate your score.

A strong credit score under your belt means you'll likely have an easier go of getting approved for an apartment and a loan when you're buying your first car.

While credit cards can have a bad rap, we'll explain why–if used responsibly—college students should consider having them.

Building Credit Early: A Head Start on Financial Success

Proverbially speaking, being a member of the Good Credit Club can make it easier for you to get approved for a loan or line of credit. Plus, a good credit score can make it less expensive to borrow money. In other words, you'll have an easier time getting lower interest rates and more flexible terms.

A positive credit history can impact long-term financial opportunities, such as:

• Loans
• Future credit cards
• Other forms of financing
• Renting an apartment or house
• Opening a utility or cell phone account
• Future employment
• Cost of auto insurance

Developing Financial Responsibility: Learning to Budget and Manage Money

When used responsibly, credit cards can teach college students financial discipline. Here are a few ways how:

Manage spending. A credit limit and spending limit aren't the same thing. Understanding that high credit usage, the balance one carries on all their cards against their total credit limit, can hurt their credit. So, if your credit limit is $1,000, aim to keep your balance as low as possible, and if you can, pay off your card statement balance by the due date each month.

Additionally, racking up a balance means it can take longer–and be harder–to pay off within a reasonable amount of time. In turn, you can end up paying more in interest. Interest is the cost of borrowing money.

Making sure you can afford to pay off your purchases on a card can help you learn how to use credit responsibly. To help you better manage your spending, you can set notifications on payment due dates and weekly messages to keep you updated on your current balance.

Create budgets. Many credit cards have built-in budgeting tools, which can help you track your spending and avoid going overboard. For instance, setting notifications for purchases on your card can help you keep tabs on your transactions. These notifications can be set for online, in-person, or over-the-phone purchases, and you can opt to receive alerts for any purchases made over a certain amount.

Plus, many cards break down your spending according to different categories. This can help you see exactly where your money is going, allowing you to make adjustments to your spending as needed.

Another feature that can help you stay on budget is to get spending reports. Depending on the card, you can gauge how much you spent in different categories by month, quarter, or year.

Make informed financial decisions. Using a credit card to analyze your spending and learn how to use your credit card responsibly can help you make well-informed money choices.
You can tweak your spending as necessary by looking at spending reports and your transaction history.

It can also help you understand when it's a good idea to put a purchase on a card. For instance, if the credit card has an extended manufacturer's warranty, purchasing a laptop or appliances for your apartment might be a good idea.

Access to Emergency Funds: How Credit Cards Can Be a Lifeline

Life happens. Pricey car repairs. Medical expenses. Emergency dental work. A credit card can be a safe alternative to high-interest payday loans if you are in a bind and need to cover an unexpected expense. You won't have to apply for a loan, nor will a lender need to do a hard pull of your credit, which can lower your score.

While credit cards can be a lifeline when you need them the most, you'll want to figure out the true cost of using them to pay for an emergency (i.e., the interest and other potential fees). That way, you won't bite off more than you can reasonably handle. Plus, you'll want to create a debt payoff plan to get your balance to zero.

Most times you can cover your emergency expenses with your credit card. But if you're not able to, you might have the option of a cash advance. If you go this route, be prepared for a transaction fee and a cap on your withdrawal amount. Credit card cash advances also usually have a higher rate.

Navigating Pitfalls: Avoiding Debt While Reaping Credit Benefits

While credit cards for students can be a boon to a young adult's credit, there are some minuses to be aware of. Here are some common concerns:

Debt. Racking up a balance on your card can negatively impact your finances. You'll need to juggle paying off that balance and your other bills. When you're young and in the early rungs of the "adulting ladder," this can feel like a tall order.

As mentioned, having a high credit usage ratio, which is the amount you're carrying on your cards against the total limit among all your cards, can hurt your credit. The lower the credit usage, the better, and ideally no higher than 10%. And while there's no specific threshold when your credit usage goes from good to bad, 30% is the point where it starts to trigger a more significant effect on your credit score.

So, let's say you have a $500 limit on a student credit card. In that case, ideally you won't want to have a statement balance of more than $50.

Paying interest. Another pitfall of having a credit card as a college student is that carrying a balance means you'll owe interest. The interest you pay on your purchases depends on your interest rate and how long it takes to pay off your balance.

Aim to pay off your balances monthly to ward off the potential pitfalls of using a credit card. If you're concerned about running up a high balance, set some rules and boundaries for your card spending, such as a monthly spending limit.

Or, make a pact with yourself to only put specific, recurring small-dollar amount purchases on the card, such as your monthly streaming subscriptions. Then, pay the balance in full. That way, you're establishing credit without spiraling into debt.

Empowering Students with Financial Knowledge and Tools

Starting your credit journey early can help you build a solid foundation that can enhance your purchasing power and make it easier to land financing with low and more flexible interest rates.

Establishing credit early, coupled with a solid grasp of managing your finances, can ensure long-term financial well-being. Why not look at your options and start today?

Frequently Asked Questions (FAQs)

What percent of students have a credit card?
Different surveys show that anywhere from 53% to 64% of college students have a credit card, and 28% report debt exceeding $2,000.

What do students use credit cards for?
Students use credit cards to make online purchases, establish credit, earn cash-back rewards on their purchases, and for emergency expenses.

What are the two disadvantages of having a credit card as a student?
Two disadvantages of having a credit card as a college student are the risk of accumulating debt and paying interest when carrying a balance.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

Editorial policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).