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Getting a student credit card while in college can help you establish good spending habits and build credit early. Responsible credit card use now can help you later when you want to qualify for better cards, buy a home or get a car loan.
The key is "responsible credit card use." You don’t want the combination of adult freedom and borrowed money to send you into a debt spiral at a young age.
Here’s how to use your student credit card responsibly and how to avoid making mistakes that can negatively impact your financial health down the line.
1. Pay your credit card bill on time
Credit cards can help you build a positive credit history, but if you don’t pay your bill on time, you'll end up doing more harm than good. Payment history is one of the largest factors in your credit scores, so make it a priority to pay your bill by its due date.
Setting up automatic payments may help you avoid missing bills and can limit negative impacts on your credit scores.
2. Don’t charge more than you can afford to pay off
It's not difficult to fall into the vortex of credit card debt. The "buy now, pay later" premise is alluring, whether it's a spur-of-the-moment spring-break trip with your friends or a great sale at your favorite clothing store. And you may be banking on paying off all of those charges once you’ve graduated and gotten a high-paying job.
But credit cards tend to charge double-digit interest rates, meaning carrying a significant balance from month to month can lead to thousands of dollars in debt that can be hard to dig out of. To avoid falling into this trap, charge only what you can afford to pay off in one month. This is easier to do if you're carefully tracking your spending and keeping it in line with your income.
Once you hit your limit, leave the card at home.
3. Keep your credit utilization low
Even if you’re being careful to pay your credit card bill on time and in full every month, getting too close to your credit limit can also negatively impact your credit scores. Experts suggest that the percentage of your total available credit you use — your credit utilization ratio — should be below 30%.
For example, if your credit card has a credit limit of $10,000, you'd want to aim to avoid having $3,000 in charges on the card at any given time.
Tracking your expenses by setting up balance alerts, and paying your balance in full and on time, can help you avoid exceeding that 30% threshold.
4. Don’t open too many cards
While it may be tempting to apply for several credit cards at once, doing so can be detrimental to your credit scores. Not only will applying for a credit card lead to a hard credit inquiry, which can affect your scores, but having too many cards can make it difficult to keep track of your spending and payment due dates.
When you’re new to using credit, the best thing to do is keep one or two credit cards for your daily spending and stick to just those cards until you’ve gotten the hang of regularly charging your purchases and paying your monthly bills.
Another major factor that goes into calculating your credit scores is length of credit history. This means that keeping your first credit card open and active for as long as you’re able to can have a positive effect on your credit.
5. Avoid fees
Annual fees may be worth it if the card in question offers rewards or other incentives to offset the yearly cost to carry it. But as you begin on your credit building journey, it’s advisable to avoid paying an annual fee if you can.
The best student credit cards typically charge $0 annual fees, which makes it less costly to keep your credit card account open for a longer period of time.