How to Use a Student Credit Card to Establish Credit

The same problem has been going on for many years. A full time college student, or even a part time college student who is finishing degree requirements, is also working. With the pressures of studying, the work may not be full time and probably is only enough to pay a few bills and keep your head above water. But what is happening is that you are studying, you are working, and you are doing NOTHING to prepare yourself for life after you graduate and have your degree in hand.

The best thing you can do for yourself is to get your credit established via a student credit card. This fact is typically not taught in high school, and even many parents do not understand how critically important it is for one to get their credit established as early as possible.

Face it, we live in a credit-driven society, and anyone who does not have credit established is viewed as a second class citizen from a third world country by many establishments. But the danger of trying to establish credit before you are really ready for it and understand how the credit reporting system works could actually do more damage than good, since having BAD credit established is almost worse than having NO credit established. If you do not understand how the credit process works, you will be creating extra work for yourself because now you have TWO tasks — one to establish good credit, and another to clean up the bad credit.

These days, it is generally not a problem for a college student with a part time job and modest income to establish good credit via a student credit card. Stop by your financial aid offer, where you will probably be given multiple brochures for applications. Many of these credit card companies have a student credit card program designed specifically for college students, typically giving a modest credit limit of say $300 or $500. If the college student can demonstrate financial responsibility by paying at least the minimum amount due on or before the due date, consistently, for 6 to 12 months, the card issuer is likely to raise the credit limit.

Do not rely only on brochures available in your college’s financial aid office however. Some credit card companies have been accused of giving kickbacks to college personnel depending on how many students sign up for credit cards, and those cards are sometimes not the best deal that a college student can get, even a college student with no previous credit established.

A second choice, and perhaps also done in conjunction with the credit card above, would be a secured credit card. This is a real credit card with the Visa or MasterCard logo, and it is NOT a debit card but is a real credit card. The difference with a secured card like this is that your credit limit is set by the amount of money you have on deposit with the card issuer. Since there is almost zero risk to the card issuer since they have your deposit, these types of cards are readily available at almost any bank and used correctly, can establish your credit and give you a good credit rating.

One of the keys to realize is that this is not free money. In essence, you are “renting” money, and you are paying for rent via interest. Make sure you make all payments on time with at least the minimum amount due so that you can establish a good credit rating. A good credit rating will pay for itself many times over during your lifetime.

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