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Should I Pay Off My Student Loan Debt Before I Apply for Credit Cards?

Feb. 9, 2015
Credit Card Basics, Credit Cards
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Hey, graduate! After four-plus years of all-nighters, too much caffeine and not enough vegetables, you’ve joined the ranks of the “real world” adults. And you might be considering whether or not you’re ready for your first credit card. But should you get your own piece of plastic while you’re paying off your student loans? Here’s the Nerds’ advice:

Should I pay off student loan debt before getting a credit card?

If you want to get a credit card to start building your credit, you should do so as soon as you’re able. An excellent credit score will get you the best rates on future loans, and will also help you qualify for an apartment, a cell phone and possibly a job in a sensitive field. And the easiest way to start building an excellent score is with a credit card.

Of course, the stipulation is that you need to pay off your credit card balance in full each month. Credit cards tend to have much higher interest rates than student loans, so it’s mathematically unwise to put extra payments toward your student loans while carrying a credit card balance.

Not sure which credit card to apply for? Check out our favorite secured cards if this is your first card, or explore our database of more than 1,200 credit cards.

» MORE: How to pay off debt

But if I have student loans, why would I need a credit card to build my credit score?

Student loans affect your credit score differently than credit cards. Credit cards are a type of revolving credit, meaning they have a set limit. But the amount of that limit you use at any given time is up to you. Student loans are considered installment credit, which means the amount you borrow and your payments are fixed.

Both types of credit accounts are included in your score, and it’s crucial to make on-time payments on all of your credit accounts, 100% of the time. However, revolving credit will affect your credit utilization – or the percentage of debt you’re using in relation to your credit limit – while installment accounts typically will not. Since credit utilization is the second-biggest factor in your credit score, it’s important to have some type of revolving credit account on your report.

Is it ever a bad idea to get a credit card for everyday use?

Not everyone is a good candidate for a daily-use credit card. If you’ve run up credit card debt in the past and you’re paying it off now, you should wait until it’s gone before you apply for a new card. You should also have a firm grasp of responsible credit card usage. Use your card regularly, but keep your balance below 30% of your credit limit and pay off the entire balance by the due date. This will help you build a great credit score without incurring any interest.

Bottom line: It’s not necessary to delay getting a credit card until your student loans are paid off, unless you have a pile of existing credit card debt. Get a credit card to build your credit and pay it off in full every month. And keep working on paying off those student loans — you’ll be debt free before you know it!

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