Credit Card Advice for College Students

person using a credit card
Denison's financial wellness counselor gives insight into the topic of students and credit cards.

As students step into the world of credit, it's good to have someone you can turn to for advice. Lini Zhang, Denison’s Financial Wellness Counselor offers these tips for students.

What attributes would you say the best student credit cards share?

The most important attribute that student credit cards should have is to give full consideration to students with limited credit history and income. Others include:

  • Good student credit cards should have no annual fee and low annual percentage rate (APR).
  • Another great feature is a fixed statement closing date and payment due date so that it is easier for students to manage.
  • In addition, a good student credit card offers good rewards programs such as Cash Back Rewards and Good Grades Rewards.
  • Finally, a good credit card should not provide a high credit line (above $1,000) to students with limited credit history.

What is the best way for a college student to use a credit card?

The advantages of credit cards, including convenience, security (the ability to dispute charges), and rewards, often lead to higher risk for impulsive buying and overspending.

For college students, I would suggest checking your balance in your bank account to ensure you have enough money to pay off your credit card balance before using your credit card. Only use the credit card when you are 100% sure that you have enough money to pay off your full balance.

After using a credit card, be sure to pay off your total statement balance during the grace period to avoid any interest and late fee charges. The grace period refers to the days between the statement closing date and the due date. You don’t need to pay any interest if you pay your entire balance by the due date each month.

After using a credit card, be sure to pay off your total statement balance during the grace period to avoid any interest and late fee charges.

What is the biggest mistake that college students make with credit cards?

There are several big mistakes that college students make with credit cards.

  • Many students only pay the minimum payment due, which is NOT correct. The correct way is to pay the full statement balance instead of the minimum payment due. Otherwise, you will need to pay interest on the remaining balance on your statement.
  • Many students believe that the more they swipe their cards, the higher credit score they will get. However, this is NOT true. Actually, a better credit score can be achieved by keeping your credit usage less than 30% of your credit line.
  • Some students use credit cards to get cash advances. Getting cash advances on a credit card is one of the most expensive ways to get cash because cash advances can come with a variety expenses. The expenses include cash advance fees, ATM or bank fees, and interest on cash advances. Keep in mind that interest on cash advances usually starts accruing immediately and there is no grace period like you can get with purchases.

What is your best piece of advice for a college student who is considering applying for a credit card?

There are several steps to take for college students before applying for a credit card.

  • Determine whether you are suitable to apply for a credit card. To determine your suitability, list your total income (from all sources) and expenses (from every single transaction) then subtract the expenses from your income to see whether you have a positive cash flow. If your expenses are higher than your income, you are not suitable to apply for a credit card. In that case, even if you try to apply for a credit card, it won’t be approved.
  • Become an authorized user on a credit card if you can. If your parents have excellent credit, ask them to see whether they can add you as an authorized user on one of their properly managed credit cards so you can inherit the good credit history of that account.
  • Be sure you understand the terms of the credit card that you want to apply for. Don’t simply assume that all the credit cards are similar. Important terms such as annual fee, annual percentage rate (APR), rewards rate, and credit score requirement differ from card to card.

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November 3, 2017