Getting a credit card in college is risky, but necessary if you hope to build your credit. If you use credit cards responsibly, you can build credit during your college years and be more likely to qualify for loans for the purchasing of a house or car once you’ve graduated. The trick is knowing how to apply for your first credit card, then educating yourself on how to use it responsibly.
Rebecca Abraham, who also has a doctorate in finance and is a professor at the H. Wayne Huizenga College of Business and Entrepreneurship, expressed her concerns for first-time cardholders.
“When banks compute your ability to afford a mortgage, they take into account all debts,” said Abraham. “If a person has too much debt and has student loans on top of that, most likely they will not be able to purchase a home.”
According to Abraham, the best way to approach credit cards — especially for those with student loans — is to have a small balance that you pay off regularly, which helps establish your credit. “At the same time, [students] want to be careful [that] their balances and debt aren’t too high, because that affects their ability to borrow for a significant purchase like a home or car,” she said.
When choosing their first credit card, students should stay away from persistent offers that arrive in the mail.
“Usually you’re flooded with companies you’ve never heard of who are offering cards. Just throw those out,” Abraham said. “Don’t do business with somebody you’ve never heard of.”
Instead, opt for trusted companies like banks where you currently hold accounts or where someone you know and trust has banked. “The bank will restrict the amount of borrowing, so while an outside credit card will look more attractive because they all focus on incentives, the danger is the student may get into too much debt and end up paying high interest,” said Abraham.
Ultimately, students should think long term. According to U.S. News & World Report, your FICO score is made up of several factors, the most influential of which are your payment history and debt. Your FICO score is derived from information obtained by the nation’s three major credit reporting industry and used by lenders to determine risks of lending and interest rates.
“When banks compute your ability to afford a mortgage, they take into account all debts. If a person has too much debt and has student loans on top of that, most likely they will not be able to purchase a home.” -Rebecca Abraham
However, if you shy away from using credit cards and have no payment history, your credit will be virtually nonexistent which isn’t a good place to be in either.
“I think students should [have a credit card]… but with a very small balance that they pay off regularly so they don’t incur interest,” Abraham said. “It gives a lender the feeling that this person has taken out revolving credit, has paid it off and is creditworthy.”
To learn more about the basics of credit, visit nsucurrent.nova.edu/what-do-you-mean-i-need-a-credit-card/.
