College can be the start to a lot of great things including new friendships, emergent personal interests, and budding careers. Just as importantly, though, college can be the beginning of your path to financial well-being. But be warned, this path can also be littered with challenges and setbacks if you aren’t careful. Indeed, college is the perfect time to begin building your credit rating and establishing a credit history. However, there are some risks that come with regular credit card usage.
As a new credit card holder, be sure that you fully understand these risks, and that you know how to mitigate these risks with responsible card usage. If you’re like most American students, chances are that you’re already graduating college with some student loan debt to your name. The last thing you need is to compound this debt with hefty credit card bills. Learn what not to do with your credit card so you can graduate with both an excellent degree and a sterling credit rating.
By the way, if you’re looking for other ways to manage your money while you’re paying for a college education, find out how to get student discounts at stores, restaurants, and more. Otherwise, read on for a look at ten mistakes that college kids make with their credit cards and get tips on how you can avoid these common credit card pitfalls.
1. Opening Too Many Credit Card Accounts
As a college student, you will be presented with a lot of tempting offers for new credit cards. While credit card companies are no longer allowed to engage in predatory on-campus marketing tactics, it’s easier than ever to sign up for credit cards online and in retail establishments. But as a newcomer to credit card usage, you are advised to start slow. Begin with a single card that comes with a favorable offer (i.e. minimal fees, low APR, and pertinent rewards). Learn how to manage this single account before you even consider adding to your arsenal of plastic.
According to Nerdwallet, “If you’re just getting started with learning how to manage a credit card, your best bet is to pick a card that suits your needs and stick with that one card for a couple of years. This will give you practice with establishing good credit habits like managing spending, paying bills on time, and staying out of debt without the pressure of having to juggle multiple cards.”
Overburdening yourself with multiple credit cards is an easy way to lose track of your spending and overshoot your monthly credit card budget. As per our next tip, this is a situation you’ll want to avoid.
2. Overspending and Undertracking
Don’t spend what you don’t have, and don’t forget to track what you spend. These are two essential and directly correlated rules to credit card usage. Only accrue as much monthly debt as you can afford to pay by the time your bill shows up. Of course, the best way to make sure you’re doing this is to keep close track of everything you purchase or pay for using your credit card.
Itemize your credit card spending at the end of each week—most weeks this spending should amount to little or nothing—and crosscheck your personal accounting against your card issuer’s online portal. Make sure there are no discrepancies between your tracking and the charges or transactions on your account.
Not only is this an important way to make sure you’re budgeting properly, but you’ll also be in a position to identify any errors or irregularities on your monthly credit card bill and notify your issuer accordingly. While card issuer errors are not common, this may be a way to spot instances of credit card theft or fraud before they can spiral into bigger issues.
3. Getting Retail Credit Cards
As we noted, you don’t want too many credit cards in your wallet. One way to avoid this is to refuse those tempting in-store sign up offers. You may be enticed by discounts and perks, but these perks are often outweighed by fees and high interest rates on any balance you carry forward. In other words, it may seem like a great deal, but some of these retail store offers are not as generous as they might at first appear.
OppU says that “Students are most likely to run into these types of credit cards while shopping in person at stores or online through pop-up ads. A store card, while a good option for some, come with dangers and should be avoided by most students. Interest rates on store credit cards are higher than many other types of credit cards. These types of cards also promote overspending since their added convenience at check out makes them hard to resist.”
Wait until you know the ropes and have a regular postgraduate income before you start accepting those retail chain offers. Only when you’re ready to pay down any retail card balance immediately after usage will you recoup the benefits of this specialized card.
4. Forgetting to Make Regular Payments
If your first college credit card also marks your first personal experience with independent financial responsibility, the most important thing you can do is pay your bills on time. Do whatever you must in order to remind yourself of your repayment date each month, whether that means setting calendar alerts, making your payments on the same date each month, or coordinating your payment date with the receipt of a bi-weekly paycheck.
Use any strategy that works for you and stay on top of your repayment schedule. Late payments are always bad, but they may be even more so for new credit users. Late payments can be especially damaging at this stage because they may come to represent a significant portion of what is known as your “credit history.” With so few other data on your credit report, those negative marks will stand out like red flags to future lenders.
Even more damaging are delinquent accounts that have been sold to collection agencies. U.S. News & World Report points out that negative marks and collections efforts that appear on your credit report will stick with you for seven years! Be sure you always make your payments on time.
5. Delaying the Repayment of Your Full Balance
Ideally, you’ll do more than just make your payments on time. Your monthly goal should be to pay your balance in full every single month. This is the only way to avoid interest payments. Moreover, the lower your balance, the better your credit usage ratio. This is a metric that figures directly into your credit score. In other words, spending and paying down your balance is the basic key to building good credit. If you can’t pay the full balance on your credit card, pay as much as you can each month. You should always aim to pay greater than the minimum amount due both to avoid higher interest charges and to keep your credit usage ratio low.
6. Letting a Friend Use Your Card
I know we’re all friends in college. We share dorms, bathrooms, kitchenettes, and study notes. But one thing you should never share is your credit card. It’s not that you can’t trust your roommate or sorority sister. It’s simply the fact that too many things can go wrong when you let your card out of your sight. According to OppU, “A few of the things that can happen when your credit card is out of your possession is the card being confiscated after an identity check when making a purchase, loss of the credit card, abusing the privilege to use the credit card by making multiple purchases, and overage charges due to lack of knowing how much has been charged.”
If you really want to help out a friend, you’d be much better off lending them a few dollars over Venmo or accompanying them to make the desired credit card purchase. Keep your credit card secure and in your possession.
7. Waiting to Notify Your Issuer of a Lost or Stolen Card
Indeed, any time your credit card is not in your possession, the risk of loss or theft increases dramatically. Credit card theft and identity fraud can be extremely costly and damaging to your fledgling credit score. Most credit card issuers provide some level of fraud protection, but even still, the consequences of a misused account can be extremely problematic—from massive unauthorized purchases and new credit card applications to undeserved strikes against your credit score for nonpayment.
Even if you are able to clean up this whole mess, the process of undoing the damage will be a hassle-and-a-half. Avoid that whole hornet’s nest by acting quickly in the event that your card is ever lost, stolen or otherwise compromised. Delaying even a day can give the perpetrator a huge head start on running up big bills, opening new cards in your name and doing all kinds of creative damage to your financial outlook. If you suspect your card is missing, make the call to your issuer right away!
8. Falling for Online Credit Card Scams
As long as we’re on the topic of protecting your card and information, losing your card isn’t the only way to fall victim to fraud. As a young, savvy web user, you may feel invulnerable to online credit card scams. But the truth is, hackers and identity thieves are becoming more sophisticated all the time. From old-fashioned Phishing scams to far more sophisticated methods of hi-jacking your web searcher, credit card thieves have lots of tricks up their sleeve. Make sure you know what these tricks are and understand how to protect yourself.
9. Failing to Open a Credit Card
Bear in mind that we aren’t trying to frighten you away from getting a credit card in college. In fact, the whole point of highlighting these mistakes is to provide you with the knowledge to use your card wisely. After all, you can’t start building your credit profile without getting a credit card.
In spite of the warnings above, the truth is, this is the perfect time in your life to start the work of building strong credit and learning responsible credit card usage. As Nerdwallet explains, “Fifteen percent of your credit score is determined by the length of your credit history, so it’s crucial to start building that history right away. As soon as you’re able to qualify for a credit card, get one and use it responsibly.”
Begin building your credit history in college. Just make sure you do it wisely.
10. Failing to Build Your Credit
U.S. News & World Report warns that just as overuse can be problematic for college students, underuse can impede future goals. After all, this is a critical point in your life. Using this time to build and strengthen your credit can help you hit the ground running upon graduation. According to U.S. News & World Report, “People with excellent credit get the best interest rates on mortgages, and this alone saves you thousands of dollars. You’ll also get lower premiums on car insurance as well as the best offers for rewards credit cards.”
Your objective should be to find a logical and limited way to utilize your credit card, one that allows you to repay your balances promptly while also perhaps recouping some user rewards. For instance, you may choose a credit card that offers points and rebates for use at participating gas stations. Designate this card just for fueling up your car. This is a great way to ensure that you only spend what you can promptly repay, and that you immediately begin to establish a robust credit rating.
Indeed, the point of getting a credit card at this stage is to actually use it. Just make sure that you do so in a judicious and thoughtful way. If you do, you should graduate college with an excellent degree and an excellent credit profile.
There’s actually more to building good credit than just using and paying down your credit card. As a college student, there are a number of other strategies you can incorporate into the improvement of your financial profile. For more, check out these Ten Ways College Students Can Build Good Credit Before Graduating.