Notice: In college, credit cards aren’t for everyone
Credit cards are an easy way to get credit, but they’re not universal. Getting a credit card while in college can be a great investment in your future, but should be approached with caution.
There are two main types of payment cards: credit cards and debit cards. The two cards are physically similar but have different functionality; a debit card lets you spend money you’ve already deposited in the bank, while a credit card lets you borrow money from the bank to build up credit.
Building credit helps your credit reports and credit scores, which show banks how good you are at paying off loans, so they’ll be inclined to offer you lower interest rates and better deals. on future home or auto loans.
Credit cards can be intimidating and often come with skepticism. Students fear going into debt, spending beyond their means, and paying exorbitant interest rates.
“Not all students should have one,” said Alena Johnson, a family finance professor who has taught at more than 22,000 Utah State University. “You should only get it if you can use it wisely to create credit.”
Johnson also said it’s easy to fall behind on payments when trying to work while in college, which is one of the requirements for getting a credit card.
If your goal is to build credit, Johnson recommends installment loans like those for cars. They are a great way to build credit and are the preferred method by FICO, or the Fair Isaac Corporation, for construction credit.
FICO scores are your credit score between 300 and 800, 800 being the best. About 90% of lending agencies use FICO, so it’s in your best interest to maintain a good FICO score. This can be done by paying the bills on time and reducing the amount of debt you owe.
If you pay off your credit card every month (which is highly recommended), you don’t have to pay interest and worry about going into debt. However, it is much easier said than done.
The mean the credit card balance is $ 6,506. Studies also show that you’re more inclined to spend more money with a credit card than with a debit card. Credit cards can easily get out of hand and end up working against your best interests.
Credit unions – which are nonprofits with better interest rates but ultimately impractical – and banks – which are for-profit and more convenient – are better places to get a credit card, as opposed to online banks and bank cards that have higher hidden value fees.
College students may be drawn to retail credit card offers, but should avoid them at all costs. The immediate benefits are outweighed by the consequences. For example, last summer, Nordstrom offered a $ 60 store credit when you sign up for a credit card. At first glance, it seems like a deal. Buyers get $ 60 off their purchase that day and get points to use for future purchases.
However, points only apply to in-store purchases, and rates are the very exorbitant fees that the students fear; 25% interest rate and up to $ 40 late fees. Infrequent use of the card and forgetting to pay for it will destroy your credit. As a student, the risk is not worth the possible reward.
The banking options at Logan are Chase Bank, Wells Fargo, and Zions Bank to name a few. Companies tend to have student credit cards, with unique benefits such as no credit card history needed and bonuses for paying on time. USU has its own campus-based credit union.
USU Credit Union is in partnership with Goldenwest Credit Union. Since Goldenwest is a Utah-based company, it allows student accounts to stay active even after graduation. With the USU Credit Union, students can open an account without the need for a credit history (just an income check), making the process friendly for young adults.
Nathan Frost, a financial services representative at USU Credit Union, spoke about the benefits of credit cards for USU students. Given the early age of marriage for many students here, building young credit is important for short-term investments like homes and auto purchases.
For students who have doubts about credit debt, there are ways to allay those doubts. Frost said it remains below 30% utilization. Usage is the amount of your credit card that you are using against your credit limit. For example, if your credit card limit is $ 1,000, use only $ 300. It offers fewer possibilities to overload your card and less risk.
Johnson had a conflicting view on credit cards. Since credit card use affects credit scores, the higher the use, the more it affects your credit. Johnson mentioned experts’ recommendation of 10% or less usage.
“It’s better not to have credit than to have bad credit,” Johnson said.
Credit.org advised to only use credit cards in emergencies and to remember that borrowed money is money that must be paid back. In addition, only one credit card is required. More only adds risk and puts the very credit you are trying to build at risk. Look for cards with no annual fee, low limit, and low accident fees, such as late payments and overdrafts. Make sure you know the deal you are signing when getting your first credit card.
Credit cards are not for all students. While there is advantages To get a credit card (protection against unauthorized charges, rewards, and credit build-up) there are also downsides. The risk to your credit and your tax liability are two factors to consider before signing the dotted lines on your card agreement.
Sara Prettyman is a second year student born and raised in Maryland. She specializes in applied mathematics and enjoys drawing, running and reading.