Graduating from high school to college is a significant achievement for many students. But with it comes a time to try out many things for the first time, one of them being the use of credit cards.
Perhaps you have seen banks and financial institutions advertising their student credit cards and trying to solicit you to apply for one, and this further begs the question, are they a good idea?
Well, just like a coin, there are always two sides, the good and the bad. Let's review the good and bad of student credit cards.
Student Credit Cards – The Good
They come in handy during an emergency
Let's face it; sometimes, while in college, students may encounter an emergency and may not have any cash at hand. At this point is where the need for having a credit card becomes clear. One may become sick, or even need to travel back home immediately.
If they have a credit card, it may help them do so without too much hassle. Therefore, credit cards for college students give both the students and parents some peace of mind in case of emergencies.
It helps students learn how to manage their finances
Many students who attend college for the first time have a mentality that it is a time that they can splurge wherever they go. But this may not be the case.
Shifting from a world of everything being provided for and finances being managed by parents, they need to learn how to manage their finances at this point.
Student credit cards can be a great way to make them learn how to manage their finances at an early age. A student might become more aware of their spending using the credit card. Having to pay the bill on time, review purchases, see the length it will take to pay off their balance, etc. It could lead them to be more cautious about how they spend in the future.
It helps students build their credit card score
Having a good credit card score is very vital. The sooner you can start building, the better. Students can use credit cards to build credit right from college.
After graduating from college, they might need to make a few purchases, such as buying a house or even a car. For one to be able to be given a loan to do so, the lender needs to ascertain that you will be able to pay up as agreed.
That's where the credit card score comes in handy. Students with a higher credit card score are in a better position to get some of the best loans with low-interest rates and so much more.
Earn Cash Back and Rewards
One of the advantages of using student credit cards is that they often offer excellent rewards and cashback on some of the purchases that they make.
If the student spends responsibly and ensures that they pay their bill in full each month, the card may accrue enough points that they can redeem for cash or reward towards future purchases.
Safer than Cash
We have all lost some money at some point in our lives, and we can all attest to the fact that it is one of the worst feelings ever. Most often, the chances of getting the money back are almost nil.
However, when having a credit card, you might lose the card, but your money will still be safe. After losing the card, you can call your bank and inform them whereby they can immediately deactivate it.
Many credit cards offer purchase protection and will refund you for any fraudulent cards. If you lose cash, your bank will not provide that same type of protection.
Student Credit Cards – The Bad
Getting into Debt
While operating using cash for purchases, once it gets depleted, you can't make any more purchases until you earn more money.
Conversely, while with a credit card, you can easily keep on swiping without knowing how much you spend until you've maxed out your credit limit.
As a result, you can easily spend more then you earn and get into debt while using a credit card. It's especially so if you are not tracking the usage of the card. At the end of the month, you could be left with a huge balance, and only the ability to pay the minimum. Leaving you with interest charges and paying more for your purchases over time.
Credit Card Fraud
Student credit cards are one of the main targets for fraudsters. The minute they get a hand on your student credit card or even some of the details, they might be using it without your knowledge to make purchases.
If you don't regularly check your credit card notifications, you may realize your card has been compromised when it is too late. Additionally, the process of reporting the illegal activity and dealing with it with the respective bank might turn to be stressful and time-consuming.
In the United States alone, credit card fraud is a four billion dollar problem.
Another thing that stands out as a bad side of student credit cards is the heavy penalties when one fails to pay their bill on time.
For one, you might end up being charged an additional “late fee” on top of what you already owe.
Secondly, late payments might trigger your interest rate to change. A higher interest rate will cost you more in the long run if you don't pay your balance in full each month.
Thirdly, your credit card might be deactivated, which means that you can no longer use it, but will still need to pay off the balance.
Credit Score Damage
As stated above, your credit card score is very vital, especially when you want to borrow money from a bank. The higher the score, the better rates you will be offered.
Late payments can easily result in a bad credit score. Payment history – how reliable are you at making payments is one of the five primary factors for your overall good or bad credit score
The minute a potential lender realizes that you have a bad credit card score, they may be hesitant to lend to you or offer a ridiculously high-interest rate, costing you more money over the life of the loan.
Now that you have all the information about the pros and cons of having a student credit card, do you think you can handle one? Well, before deciding on whether or not to get one, you need to be very honest with yourself in terms of your financial discipline.
Also, there being a plethora of banks offering students credit cards, you need to do your research thoroughly to be sure that the one you choose is the best option for you.
Remember, proper management of money while in college sent the foundation for your future money behaviors. Good luck!
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. He blogs at Debt Discipline.