Signing up for a student credit card probably sounds exciting. After all, for most students, the first chance is to open a line of credit, in addition to the student loans they have taken.
However tempting it may be to take this new card for a round at the nearest mall or to animate your friends for brunch, the true purpose of a student credit card is to encourage young people to improve their credit rating. This can only happen through responsible and consistent interaction.
If you have just signed up for a student card, here’s how to use it successfully.
Use it for small recurring bills
Part of what determines a credit score is the percentage of credit utilization or the amount of available credit that you use. If you have a credit card with a $ 200 limit and a $ 100 balance, use 50% of the card’s credit.
It is best not to use more than 30% of your credit limit or your credit rating will be affected.
Most student credit cards have a small credit limit, so it can be easy to get over it. If your card has a limit of $ 1,000, do not spend more than $ 300 on the card during the billing cycle.
The easiest way to go below the recommended limit is to use the card for only one or two small recurring bills. A subscription service like Hulu or Spotify is an easy way to do that. Simply link your card to the account and put it away in a safe place.
Make automatic payments
The most important element in determining your credit score is whether you pay your bills on time. This represents 35% of your total FICO score. If your credit card bill is paid every month on or before the due date, your credit rating will increase.
Timely payment can be difficult for a busy student, especially if you choose manual payments. The simplest solution is to schedule automatic payments from your bank account.
You can decide if you want to pay the entire bank statement or the minimum payment. If you only pay the minimum, interest will be charged but it will not affect your creditworthiness. If you can afford it, you’ll pay the balance in full.
Make sure you have enough money in your bank account to pay for your credit card bill. If your bank account does not have sufficient funds, you will be charged a refund fee. You may also owe a late fee and penalty fees. You can set the minimum amount to be paid automatically each month and the balance paid manually to avoid overdrawn current account.
Choose Paperless Bank Statements
Credit card issuers send monthly bills that list your fees, the minimum payment, the due date, and the available credit limit.
Billing can be done by mail or electronically. Many security experts recommend that you create electronic bank statements to avoid stealing a bank statement and hacking into your account. If you opt for paperless bank statements, make sure that you continue to read the statements each month.
Check your bill regularly
Even if you only use your student credit card for your Netflix subscription, it’s still a good idea to check card activity about every week. Credit cards can be hacked. Fraud should be detected sooner rather than later.
Create a calendar event or reminder on your phone to view your bill. If you see something you do not recognize, immediately call the card provider.
If you lose your card, cancel it immediately and get a replacement card. If you do not cancel a card after it has been fraudulently used, you can be held liable for purchases up to $ 50. It is also troublesome to individually call and complain about purchases.
Avoid using the card
With a credit card, you can easily spend money without noticing that the budget is exceeded. A study found that people can spend up to 100% more using a credit card instead of cash.
One way to get around this risk is to just leave your card at home. If you go shopping or go out with your friends, bring cash with you and take only as much as you want to spend.
Take advantage of credit card rewards
Some student credit cards offer additional rewards and perks that you can not find with a debit card. For example, the Discover it Student Cash Back card offers a $ 20 bonus if you have a GPA of 3.0 or higher.
Other rewards may be cashback, travel insurance or no fees for foreign transactions. This can be a lifesaver if you travel abroad or go on a spring break.
Track your credit score
After using your card, you can track the progress of your credit rating through the Mint app. Some card providers also have their own credit monitoring system.
It can only take a few months for a big bump to be seen in your score, especially if you use the habits listed above.
Monitoring your credit history also keeps you up to date on issues such as identity theft or bills sent to collections.
A good credit score will help you immensely after graduation. You can get a flat without a co-signer, refinance your student loans or sign up for benefits without having to pay a down payment. You may even be able to upgrade to a better premium credit card with exclusive travel or cashback benefits.
Keep the card open
It may seem logical to cancel your student credit card once you are no longer a student, but you do not have to be in college to run a student credit card.
Closing the card can also affect your creditworthiness, especially if you do not have alternative forms of credit. Instead, keep the card open and use it every month. Use the above strategy and keep a small recurring bill on the card.
The average age of your credit accounts accounts for 10% of your FICO credit points. If possible, keep the card open as long as possible to get a healthy score.