Credit cards make it easy to cover a variety of expenses. But are credit cards suitable for college students? The answer is “it depends.” While a credit card may make sense for one student, it might be a mistake for another. By understanding the pros and cons of having a credit card, college students and their parents can determine whether it’s wise to open one. When college students open credit cards, they can reap the following benefits:
Building credit scores
Every time a college student pays their credit card on time and the entire balance, their positive payment history reflects on their credit report. Using their credit card can help build their credit score and help them qualify for competitive rates and favorable terms on car loans, mortgages, personal loans, and other products down the road.
Learning how to manage money
A credit card provides college students with first-hand experience in money management. It also teaches them how to budget, so they're able to make their monthly payments on time. In addition, they'll understand how interest and fees work and, hopefully, build a foundation for a successful financial future.
Covering expenses and emergencies
College students have many day-to-day expenses such as books, groceries, transportation, and entertainment. If they have a credit card, they can pay for them quickly and don’t have to worry about having a lot of cash on hand. Credit cards can also give them the funds they need to cover emergency expenses when they’re away from home.
Enjoying rewards
Many credit cards offer rewards like cash back, gift cards, and travel points. When college students take advantage of these programs, they’ll realize the value of credit cards and may be more likely to use them responsibly when they graduate and enter working adulthood.
Reasons to avoid a credit card while in college
While credit cards come with many perks for college students, there are drawbacks to keep in mind:
Credit card use may hurt credit
If a college student fails to pay off their credit card on time and in full every month, their credit will take a hit and make it challenging for them to secure financing in the future. That’s why they should only open an account if they’re confident they’ll be able to make all their monthly payments.
A temptation to spend
It’s all too easy to overspend with a credit card. Unfortunately, many college students do so and find themselves in a cycle of debt, which can add to the debt they’ve already incurred from student loans. Therefore, credit cards can do more harm than good for those who know they won’t be able to live within their means once they get access to a credit limit.
Difficulty in making payments
Since most college students are busy with class, homework, and social events, many struggle to hold down employment. If they cannot work and earn money to make payments, a credit card is not wise. Not only can it take a toll on their credit score, but it may also lead to costly interest and late fees.
Work your financial professional
If you’re unsure of whether your college student could benefit from a credit card, consult your financial professional. They can make a recommendation about credit cards and your student while helping you plan for college expenses.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article was prepared by Fresh Finance.
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