Using a Student Credit Card to Build Credit
As a student, building credit is probably not high on your priority list. However, it’s essential for your future financial health. A good credit score can help you qualify for loans, get approved for rental applications, and even lower your car insurance rates. One of the best ways to start building credit as a student is through a student credit card.
Build Credit With a Student Credit Card
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What is a student credit card, and how does it work?
Student credit cards are credit cards designed specifically for college students. They have features tailored to fit the needs of students, such as low or no annual fees, low credit limits, rewards programs targeted towards students, and beginner-friendly tools. They aim to help students establish and build their credit history by providing opportunities to make regular, on-time payments and establish responsible credit behavior.
The way a student credit card works is the same as any other credit card. You make purchases with your card, and at the end of the billing cycle, you are required to pay the balance due. If you pay your balance in full and on time every month, you'll be building a positive credit history. However, if you miss payments or only make minimum payments, you will hurt your credit score.
Building Credit through on-time payments
Having a positive credit history is crucial in building credit. The easiest way to establish a positive credit history with a student credit card is by making on-time payments every month. Late payments will not only hurt your credit score but will also result in late fees and increased interest rates, making your credit card use more expensive.
One way to ensure payments are made on time is by setting up automatic payments from your checking account. Doing so makes sure the payment is made on time and eliminates the worry of missing the payment date.
Managing a low credit limit
Student credit cards typically have low credit limits to help students manage their expenses and avoid accruing debt. This means you need to be mindful of your spending habits and manage your credit card within your limit to avoid being declined or hurting your credit score from over-limit fees.
Additionally, responsible use of credit cards and keeping your credit utilization rate low (using less than 30% of your credit limit) can help increase your credit score. A good way to manage it is by creating a budget, tracking your expenses and credit card usage, and staying within your budget.
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Other tips for using a Student credit card
* Keep an eye on your credit report: Knowing your credit score and checking your credit report frequently helps you monitor your progress and spot errors or discrepancies in your credit history.
* Use your rewards smartly: Student credit cards usually offer rewards programs with incentives such as cashback, points, and discounts on specific purchases, such as textbooks or restaurants. It’s essential to use these rewards smartly and not overspend to accrue more rewards.
* Avoid applying for multiple cards: Applying for several credit cards at once can hurt your credit score by creating multiple inquiries on your credit report.
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Using a student credit card can be a powerful tool in building credit as a student. However, it's crucial to use the card responsibly by making on-time payments, staying within the credit limit, and managing your expenses wisely. A good credit score can make it easier to qualify for loans, rent an apartment, or get a job, setting you up for financial success in the future.
There is a lot to be gained from our free general financial aid advice, but it’s also a very individual process. If you have remaining financial aid questions, email us to discuss more or book an individual session.