What They Don’t Tell You About Credit Cards in College
By Jasmine Powell
When you first enter college, all the doors to credit cards and free money seem to open. One day, you’re on campus, and someone randomly offers you a free pizza if you sign up for a credit card. Or, if you’re like me, you accept the offer in a checkout line for a discount.
I was shocked that anyone had the faith to “give” me $1,000. I was even more shocked spending the last half of sophomore year getting bombarded with calls from a collection agency.
The extreme high and low that I experienced through my credit journey taught me this—nothing is free. No matter how many pizzas they offer you in the plaza. Or how much many perks, everything comes with a price. As much as this experience stressed me, there is so much I learned in regards to credit.
Here’s what they don’t tell you about credit cards in college:
1. You’re Really Just Borrowing
It’s like a student loan—only you HAVE to pay it back. Or beware of phone calls at the crack of dawn. It’s fun when you’re able to go and spend what you want—buy clothes to flex in, enjoy the meals out with friends. It’s completely different when you’re responsible for having to pay it all back.
In terms of credit, you should only really be spending around 10% of the amount of credit you’re getting. Creditors like when your utilization is low—it shows that you’re aware of your spending. So make sure you spend with purpose and try to always pay it off. Don’t get too comfortable with spending with your credit card.
2. Your Credit Card Goes On Your Credit Report
When I first started my credit journey, I didn’t know the importance of a credit report. Like your transcripts with your classes, a credit report is a summary of your credit history. It includes the good (how long you’ve had credit), the bad (your debt, your overdue bills, etc), and the ugly (those credit card inquiries). Your credit history follows you, and it can be a big dark cloud over your efforts in improving your credit.
Who Creates the Reports
The three credit bureaus (Equifax, Experian, and TransUnion) are like the librarians of credit reports, and lenders and creditors report to them about your credit whereabouts. Having a good payment history and a good number of accounts is crucial to having a good credit report. If you miss a payment on your credit card bill or on a loan, that will be written down. This one mishap can make you look unreliable to future creditors and can be a reason you miss out on good deals or future opportunities.
Things like hard credit inquiries can harm your credit if you apply for too many credit cards (or other forms of credit, like auto loans) at once. These inquiries show creditors that you may be having financial troubles. And that can be seen as a liability to them.
Note: there are two types of credit inquiries. A soft inquiry, when you check your report or an employer views your report, will not impact your score while a hard inquiry, done when you apply for credit, will. In turn, checking your credit score will not impact your credit. But, hard inquiries can.
Not only that, but it can take nearly seven years for negative things to fall off your credit report. I learned this the hard way when starting off. After missing so many payments, my credit account went into collections. I had so many negatives on my report that my score dropped to the lowest number it’s ever been.
How to track your credit
A great way to monitor your credit would be to use apps like Credit Karma and NerdWallet. Also, be sure to view your credit report, which you can see three times a year for free. And if there are any things on your report that don’t look like you did it, make sure to file a dispute with your creditors.
3. About APR
While I made efforts to pay some of my balance, I didn’t realize that I wasn’t doing much to help my situation. When I would pay my minimum balance, I was only paying the APR (annual percentage rate). Carrying a balance hurt me more than I thought it would.
I hadn’t known much about APR when I initially applied for a card. So, briefly, APR is the cost of borrowing (including fees and interest) from a company as an annual percentage. On most cards, you can avoid paying interest on your purchases if you pay off the balance in full by the due date. However, because I was a college student, I could only afford so much. I was simply paying the minimum payment, which was basically just the interest itself.
Before getting any credit card, look at your APR. Obviously, the lower your APR, the lower the cost of using the credit card. It would have saved me a lot if I had known this.
Who receives the best rates? Consumers with positive and proven credit histories.
4) Some Credit Cards have Annual Fees
Sometimes, it isn’t just enough to apply for a credit card. In some cases, you have to pay annually. And although it may seem ludicrous, especially with how many credit cards are out there, you may not have a choice depending on your credit score and income.
If you’re looking to get better rewards with fair credit, a credit card with an annual fee may be for you. Or, if you travel a lot, or would like cash-back rewards on your purchases, a card with an annual fee wouldn’t be far-fetched.
However, if you’re a college student just looking to build credit, you can probably skip out on this offer.
5) Credit Cards Have Grace Periods
Yes, you read that correctly. There are grace periods (depending on your credit card agreement), and this period usually occurs between the end of a billing cycle and the date your payment is due. However, this all depends on when you make your payment and if you’re carrying a balance forward.
For example, if you pay off a balance in full by your due date, you won’t be charged any interest for any new purchases made in the current billing cycle.
To avoid interest, it’s best to begin making purchases at the beginning of a billing cycle. That way, you’ll have 30 days to pay your bill and avoid interest.
Here are some tips on building credit while in college:
Get a secured credit card
One of the best things I did for my credit was get a secured credit card. A secured credit card is a card that is backed by a cash deposit that you give when you open your account. However much you put down is your limit. For example, I put down $250, so my limit was $250. The deposit is put down to back the credit card issuer—if you’re late on your bill or you don’t pay, the issuer takes from your deposit.
Over time, if you pay your bill on time, your credit card issuer will give your money back and may even offer you an unsecured credit card. What’s great about this is that you won’t’ start off from scratch—your issuer will report back to the credit bureaus about you on-time payments. A win-win!
I put my own money down to bet on myself. Had I had done this in college, who knows how high my score would be. Invest in yourself—get a secured credit card.
Pay Your Bill in Full
I find that paying the bill in full makes me more confident in my ability to establish credit. It also leaves carried balances off my report and shows that I’m responsible to creditors. Finally, it saves me money—I won’t be paying money to the creditor.
Pay Before Your Statement Date
Paying your balance off in full before your statement can help drop your credit card utilization down to 0%. Although it may be okay to have a small balance under 10% utilization, remember that your APR may increase that balance. To be safe and avoid paying any more money than you have to, pay off your balance in full. Itcan make things less stressful.
Financial freedom starts with you. One of the first steps in that freedom is being aware of the terms of your credit and how credit can help you. It will take time. You will make mistakes. Learning to manage your money and finances will help make you more responsible and confident.
Jasmine Powell is currently a graduate student at the University of Memphis and a writer Nav.it. Her goal is to make writing her living and create material that will help people of color in their daily lives.