Renting Or Buying A House Or Apartment
Many rental applications require a credit check so that landlords can review the applicants credit history. Here again, student credit card use with a strong track record of repayment can help build a credit history and identify you as a responsible young adult and potential good tenant, helping to strengthen your rental application. When youre ready to buy a home, a strong credit history will also be key to getting a mortgage.
Originally published July 13, 2015.
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Business Ethics And Credit Cards
What ethical issues should the senior management team of our financial company address relative to the marketing of credit cards to college-aged consumers, and what processes should senior management use to address those issues?The increased use of credit cards among college-aged students has become a concern as credit card debt continues to grow. While credit card usage has its advantages, we are concerned that credit card solicitors unfairly exploit inexperienced young adults into adopting
Receive More Favorable Auto Loan Rates
Having built experience using a credit card while in college can even be beneficial when it comes to purchasing a car. Auto loan lenders like to see that youve been able to use credit responsibly and make payments on time. Without a credit card or other form of loan account on your credit report, you may be approved for a higher interest rate than someone with more credit experience. You could also be required to have a parent cosign on the loan.
In the worst case scenario, you may be denied for an auto loan all together. While having a credit card wont guarantee youll be able to purchase a car with the most favorable auto loan rates available, responsible card usage will certainly put you on the right track.
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You Can Ruin Your Credit Score
Aside from getting trapped in debt, there are a couple of ways you could end up ruining your credit score with a student credit card. The biggest pitfall is if you don’t make your payments on time. Just one late payment can make your credit score tank the later the payment, the lower your credit score will drop. Even worse, late payments stay on your credit report and depress your score for a full seven years.
An additional way you could harm your credit score is if you rack up a relatively large balance. Another big credit score factor is how much debt you have relative to your credit line. This is known as your “.” If you’re using a big chunk of your available balance, your credit score will likely drop.
Luckily, your credit utilization ratio is one of the easier factors to correct if you pay off your balance in part or in full, you can help boost your credit score almost immediately.
Best Credit Cards For Bad Credit
About Ryan Guina
Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.
Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.
Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.
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You Can Get Trapped In Debt
Student credit cards don’t generally come with big lines of credit, like someone with a six-figure salary might get. Still, since you’re a student, your income isn’t necessarily very high, and it might not take much for you to get stuck in a cycle of debt.
It’s easy to rack up a balance on your credit card and only make the minimum payment. You might even think you’re doing well by making that minimum payment on time each month. However, if that’s all you pay, it could take years to get out of debt, and you’ll pay a significant amount of interest charges by the time your debt is settled.
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Knowing When A Student Is Ready
Any one of the strategies mentioned above to getting a college student started on the path toward sound credit management can work well, but only when the student is ready to be a responsible steward of money. Just because a young adult is headed off to college doesnt necessarily mean he or she is ready to take on the challenges of managing a credit card on their own. If impulsivity is an issue, handing over a credit card or encouraging applying for one may end up in financial disaster. On the other hand, a young adult who is typically on time for curfew or has shown responsible behavior in other areas of life may be ready to take on a credit account.
Parents should take the time to discuss the ramifications of overspending, missing payments, or racking up too much debt on a card to ensure the student is ready to take on their first credit card.
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Secured Mastercard From Capital One: Best Secured Credit Card
If you cant get approved even for a student credit card designed for those with fair credit, a secured credit card such as the Secured Mastercard from Capital One might be the perfect solution. This card isnt specifically catered toward students, but there are no exclusions as to who can apply.
With a secured credit card, you have to put down a cash deposit first before you can use it on the Secured Mastercard from Capital One, either a $49, $99 or $200 refundable minimum security deposit is required. This allows the bank to already have your money in case you default on any payments. The more you put down for your security deposit, the higher credit line youll get.
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Once youre approved for the card, you can ultimately earn back your initial deposit by taking responsible actions, such as making on-time payments. Your account will be monitored closely, and once the bank deems your account ready, the security deposit will be returned to you as a statement credit. Or, if you ultimately close your account, your security deposit will be refunded.
Being approved for a secured credit card is much easier than getting a regular credit card, and can ultimately help you in establishing a credit history. The downside of this card is that theres no welcome bonus, no rewards like cash back or travel points and your credit limit will be quite low.
Apply For A Secured Credit Card
A secured card works just like a traditional card when it comes to making purchases. It’s the application process that’s different: You need to make a deposit that will serve as collateral.
Your secured card’s limit will be no larger than this deposit, which may limit your ability to make big purchases with the card. But secured cards are available to people as young as 18. Since they require collateral, they may have a higher approval rate for those with bad or no credit. Not all banks or credit card companies offer secured credit cards, so be sure to do research on which cards might be available to you.
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Signs Students Should Hold Off On Getting A Credit Card
Of course, some people just aren’t ready for the responsibility of a credit card in college. Do you have a job? Are you the one always treating your friends to lunch? Does your phone buzz nonstop with alerts from your bank that your checking account balance is in the single digits? Do you wish your school offered a major in shopping?
If managing money is an ongoing challenge for you, getting a credit card in college probably isn’t a good idea. Credit cards can tempt you to spend more than you can afford. If your credit card balance climbs too high, it could damage the very credit score you’re trying to establish.
If you aren’t yet ready for a credit card, start by opening a checking and savings account, putting money into savings on a regular basis, and using your debit card responsibly.
Build A Credit History
From the time you begin using a new credit card, you are building a relationship with your credit card company. Responsible use, such as paying your bills on time and in full and keeping your balance low, may be reported to the credit bureaus helping you to build a credit history. Then, when youre ready to apply for a higher credit limit or a card with different benefits, youll already have a track record as a good credit card customer.
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Conniving Campus Credit Essay
Campus Credit According to Eric Hoover, the lure of easy credit on college campuses causes students to be burdened with needless and unscrupulous debt. In his essay, The Lure of Easy Credit Leaves Students Struggling with Debt, Hoover effectively argues his position through significant references and by successfully rebutting the opposition. Hoover explains how college students are not prepared to deal with the financial responsibilities associated with managing credit cards and
The Downsides Of Credit
Once you turn 18 and can qualify independently for a credit card or loan, you become a prime target for lenders. Credit card companies know that young adults are eager to begin their adult lives, and credit cards can give them a sense of financial independence.
Unfortunately, many teens and college students don’t fully understand interest rates, terms, and card features. In some cases, the card you choose may set you up for financial struggles. Interest rates can compound and quickly increase your debt, perhaps resulting in higher and unmanageable monthly payments.
Younger people who are in the market for a credit card should get educated about the potential effects of high-interest rates, making minimum payments, and making late payments. If teens or young adults have difficulty keeping up with credit card payments, their debt can be destructive to their credit history.
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You Think They Need One To Start Building Credit
The length of your credit history is one of the most important factors that lenders use to determine your credit score. Its natural, then, that many parents think that their child needs to open a credit card as soon as possible so that they can begin building their credit.
But if this is the only reason youre thinking about a credit card for your child, you have other options. For example, if your child is leveraging student loans to pay for college and these loans are in their name then they are already building their credit history. Similarly, any recurring bill that is in your childs name can help them begin building their credit history, from a car insurance bill to a monthly phone, rent, or another utility bill.
And remember, there are a lot of other factors that go into determining someones credit score beside the length of their credit history. Your payment history and total credit utilization rate are also extremely important, as are other factors like the different types of debt you carry and more.
If you and your child do still opt to sign up for a credit card, remember to make sure that the bill is paid in full every month to avoid interest charges. It is a myth that you need to carry a balance from month to month in order to build a credit history simply having an active account is all that you need.
Who Is Responsible For The Balance Due
While you are both legally responsible for the charges, there should be some discussion and agreement between you and your child as to the intent of the arrangement. If you are paying all of your childs college expenses, then it would make sense that you are expected to pay the balance charged to any credit cards given to the student. However, if your co-signature is merely there to make it easier for your child to obtain a credit card and build a credit history, then make it clear that you expect your child to be responsible for the balance due. Defining these rules ahead of time will make things easier for you and your child down the road.
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Why Credit Cards Could Be Beneficial To College Students
For college students, credit cards offer financial flexibility and a way to build credit. Still, having a credit card is a big responsibility. It’s important to treat credit carefully: conduct research to find the card you want, understand how card spending fits into your overall budget and use credit at a level you can afford.
If you make a habit of paying your bills on-time, you can build a strong credit history for your future. When you pay off your entire credit balance every month, you can avoid interest charges and use category spending to earn cash back and rewards points from credit cards with perks.
Your first lessons in credit can last you a lifetime, opening up a credit account can help you graduate into the real world with a responsible credit history to last a lifetime.
Learn more about the credit card options available to students.
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Learn Good Credit Habits
One of the primary reasons to get a credit card for college is to begin learning good credit habits. Credit cards can be a great start for students to learn how to manage their money and a monthly budget while away from home for the first time. However, getting a credit card comes
Student credit cards often initially start with low, manageable credit limits. This allows college students who are new to credit the ability to learn how to use the card and make payments on a small scale. This can help prevent overspending or splurging on unnecessary items. As you gain experience and make regular monthly payments on time, a higher credit limit may be offered. Paying your balance in full each month will also mean you wont have to pay interest.
It is helping me build a good credit while also improving my personal responsibilities and how to deal with them. I am so glad I applied for this credit card and decided to begin my life knowing Im starting it off right with the right people. – Bryonna, 1FBUSA cardholder review from MO
Check Your Credit Report Regularly
You are entitled to one free credit report annually from each of the Credit Reporting Agencies . You can order your report from all three CRAs at the same time â or pull a single report every four months. Whichever option you choose, commit to checking your credit report regularly to monitor for any suspicious activity.
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