Access to a credit card can be a great way to build good credit and learn to manage your money. However, it’s also very easy to get yourself in trouble with access to credit that doesn’t carefully track or require you to prove your income.
Consider a Secured Card
If you’re just starting out and building your credit, consider getting a secured credit card. A secured credit card has to start with a deposit and generally has a low ceiling.
A secured credit card is hard to overcharge and get yourself into trouble; you’ve put down a deposit that can pay off the total balance because of the low credit limit. If you’re interested in a secured credit card, try to arrange one through the bank where your paychecks or student loan proceeds get deposited.
If You’re Employed
A student credit card is inherently more costly to use. It offers a lower credit rating, higher interest and more fees than a standard card because a student is a riskier bet for the lender. If you’re working, you may be able to get a consumer credit card. That being said, if you don’t have good money management skills, you can get yourself in more financial trouble in a shorter amount of time with a standard card.
A simple trick to managing your consumer credit card is to not spend more than you have in the bank. Look for a consumer card that will give you points, cash back or miles that will improve your life.
If you’re under the age of 21 you will need a cosigner to get even a student credit card. You will need to be able to show proof of enrollment and pass a credit check. If you have no credit rating, see the instructions for a secured credit card above.
You can get a better rate of interest by becoming an authorized user on a parent’s card. If you go this route, make sure that you never put a bigger expense on the card than fits in your budget. Work with your parents to make sure that all purchases are valid; fraud is a risk and it’s easy to miss fraudulent charges with multiple users on one account.
Watch Your Interest Rate as Well as Your Balance
According to Lantern by SoFi, your credit score will have a big impact on the cards you’ll be offered. If you have no credit history at all, be aware that you will pay higher than the average credit card interest rate unless you get a secured card or a cosigner.
Building your credit use with an eye toward keeping a healthy credit rating is critical during your student days. For example, you may be able to pay your cell phone and your rent with a credit card. Do so, and then pay off the card balance as soon as you get your statement. Making payments on time and not utilizing more than 30% of your credit limit on your cards are both crucial to building a healthy credit rating.