As a recent college graduate, I can personally vouch that I was never taught how to manage my money in my four years of higher education. For lack of a better term, you’re expected to “grow up” as soon as you enter the workforce, which makes it imperative to get your financial education in your hands before heading out into the big, wide world.
Over the past year, I’ve learned some crucial financial lessons—admittedly, some of them the hard way. But if you’re still in college, it might actually be the perfect time to get a jump start on credit building.
From move-in to move-out day, you’ll have plenty of expenses during your time at school where a credit card can come in handy. Opening and managing your first credit card can be stressful and potentially dangerous because you’ve been given this new purchasing power.
However, by learning how to use credit cards responsibly for one-off and day-to-day purchases, you can create great financial habits that will help you for the rest of your life.
In addition to establishing credit, your first credit card can help you earn valuable rewards for future travel, from cash to points and miles. And by the time you graduate from college, you’ll have several years of credit under your belt — necessary to secure apartment leases, car loans and mortgages.
While some of these rules for responsible credit use may seem more obvious than others, we’ll go over the dos and don’ts that will help you build a solid financial future.
Related: TPG’s Beginner’s Guide to Credit Cards
Get familiar with the world of credit cards
There are so many credit cards to choose from that your first choice may seem overwhelming. Do some research. It is important that you choose the best card for you and your lifestyle. Just because a friend raves about a card doesn’t mean it’s right for you.
TPG is dedicated to helping you make informed decisions, so get started with us Check out our extensive range of credit card beginner guides and credit card reviews. Once you get a rewards credit card, we’ll walk you through all the awesome things you can do with the points and miles you’re earning.
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To begin with, you probably won’t qualify for any premium credit cards. For most college students, you may have limited income (or possibly no income) from a part-time job.
Fortunately, there are plenty of cards made just for college students, many with no annual fee, and these will help you start building credit. From restaurants to groceries and gas, a student credit card will reward you for these everyday purchases.
I didn’t know any better, so I opened my first credit card out of pure convenience. Because I already had a checking and savings account with Wells Fargo, I opened the Wells Fargo Cash Back College℠ Card on my 18th birthday, which offers a 1% cash-back rate on all my purchases.*
While this card helped me build credit and opened the door to bigger and better cards down the road, there are other student cards on the market that offer better rewards rates.
For students shopping around for their first card, I recommend the Discover it® Student Cash Back. You don’t need a pre-existing credit score to apply, which is a huge bonus for students. You’ll get 5% cashback on a rotating selection of categories every quarter and 1% back on all other purchases. Discover will also match the cashback you get in the first year. Plus, it’s a no-annual-fee card.
Information for the Wells Fargo Cash Back College Card has been independently collected by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
*The Wells Fargo Cash Back College Card is no longer open to new applicants.
Related: Why Citi Rewards+ is great for college students
Manage your own finances
While getting the right card is imperative to establishing your credit, taking control of your finances is just as important.
You may already have a checking or savings account, but if your parents have managed it up until now, it’s time to ask for access to your own. Keeping track of your money and transactions is key to becoming financially responsible and independent.
The same principle goes for credit cards. If you and your parents decide to start building your credit Adding you as an authorized user on their accounts, ask for account access.
Some parents may not feel comfortable giving their child a say in family finances, but may want to reconsider. By allowing the authorized user to see where they stand against the card’s credit limit and what they’re earning on their spending, they’ll be motivated to be smarter with their purchases.
If your parents don’t want to add you as an authorized user, don’t worry. This is another instance where opening a student card may be the best choice.
If you, the student, decide to open a credit card, keep an eye on your spending and stay on top of your bills, as both play a role in calculating your credit score.
Set aside a few minutes to check your account twice each week. This will help you avoid unnecessary charges from missed payments and interest fees. It’s also a good idea to turn on automatic payments or set reminders for yourself so you don’t forget to pay your bill each billing cycle.
Related: Top Value Credit Cards for Authorized Users
Set your own financial goals
Having a specific goal in mind will help keep you on track — and there’s nothing like the satisfaction of successfully reaching a milestone.
Perhaps your initial goal is to learn the basics of credit and build good credit card habits. In this case, you don’t even need to worry about earning rewards if your goal is to ease into the credit card world.
But if your goal is to collect enough Points to Pay for Your Spring Break Trip Find out what you’ll need to spend to earn these rewards. You can earn enough points and miles from your welcome bonus, with spending thresholds that you must meet within the first few months of card membership.
RELATED: Credit Card Sign-Up Bonuses You Can Earn for Spending $1,000 or Less
How to use credit cards responsibly
When you get your first credit card, you have more spending power. But this isn’t “free money, though,” as Eli Szymanski, assistant vice president of credit card products at Navy Federal Credit Union, points out. “Make sure everything you put on your card is within your normal budget. It’s important that you track your spending and pay off your balance each month to avoid going into debt with late fees and interest charges. If possible, I recommend automatic Recommend setting up payments with text alerts on your mobile device to ensure timely payments.”
If you’re new to the world of travel rewards, get familiar 10 Commandments for Travel Rewards Cards. Specifically, commandment number one: You must pay your balance in full.
If you don’t and you have an unpaid balance, interest will be charged and you could end up paying more for your purchases in the long run. Most travel credit cards have high interest rates – although some offer 0% APR for an introductory period – so carrying a balance will negate the value of any points or miles you earn.
Ultimately, this bad behavior will affect your credit score, hindering your ability to open a card or get a mortgage or other loan in the future.
If you’re wary of this new spending power and the risks associated with credit cards, “a secured credit card is a great option,” according to Szymanski. “Students may want to consider starting with a secured card because it can help you learn credit card basics and valuable money management skills while you’re young. Some secured cards even come with benefits.” These rewards can usually be redeemed for gift cards, merchandise or cash back.
For students with traditional (unsecured) credit cards, it’s important to manage your money wisely. Szymanski says the importance of maximizing the card’s benefits comes next. “Especially now that back-to-school spending is so high, if available, choose to shop through your card issuer’s online shopping portal. This will earn you more bonus points or cash back than you would for in-store purchases. capacity or from the retailer’s website.”
Another important factor with credit cards is how much of your spending power you’re using — known as the utilization rate. “If you have a $5,000 limit on your credit card, you don’t want to come close to reaching it, because high utilization negatively affects your credit score,” says Szymanski. “Maintaining a healthy track record can boost your score.”
The bottom line
Getting a credit card in college can be very beneficial, as Debit cards won’t offer you any points and miles, nor will you receive significant fraud protection from them. From building your credit to earning points that can be redeemed for travel, the options are practically endless.
However, this will all depend on being a responsible first-time credit user. The sooner you adopt responsible credit and spending habits, the easier it will be to get cheaper travel and auto and home loans.
Related: How to Check Your Credit Score Absolutely Free