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Avoid These 7 Common Credit Mistakes in College

8 min read

Last Updated: July 10, 2024

Table of contents

Key Takeaways

Excessive credit card spending can lead to debt and lower credit score.
Setting up automated payments or using reminder apps can help you to pay credit card bills on time.
Responsible spending habits include not spending beyond your means.

So, you’ve made it to college and you’re finally enjoying your first taste of freedom. With all that freedom comes some newfound responsibilities—should you stay up late hanging out with your new friends or head home early and study for that exam? Do you want to splurge on a new outfit? Pizza or salad? Sometimes it’s not easy to make the “right” decision.

Thankfully, when it comes to credit cards, we can offer some help in your decision-making process. College should be filled with all sorts of new opportunities, but credit card debt shouldn’t be one of them.

Understanding how credit cards work and starting good credit habits can set you up for a future of financial success.

1. Choosing the wrong type of credit card

Did you know you have a spending lifestyle? You might find most of your spending goes into certain purchase buckets like groceries, gas, or eating out. Finding the best credit card that will reward you with perks, points, or cash back on these kinds of purchase categories can help you save money overall. It’s like free money for spending on things you already do.

With the Discover it^® Cash Back Credit Card, you can earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases.

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To take full advantage of rewards spending, every purchase should be on a credit card. Doing this can also help you keep all your purchases in one place, potentially making it easier to budget—you’ll see where you spend your money and where you could cut back. Just remember to pay off your balance in full each month if you want to avoid paying interest.

2. Forgetting to pay your monthly bill on time

One of the biggest ways a college student can get into trouble with a credit card is with a missed payment. A missed or late payment could result in late fees, higher interest rates, and a lower credit score. Negative items on your credit report can make it harder to get credit in the future. You’ll need good credit to rent an apartment or get favorable terms on an auto loan.

What are some good methods to make payments on time?

Set up automatic payments through your card issuer. Discover^® Card has a DirectPay option.
See if your credit card company offers an app that allows you to set up alerts to track when payment due dates are approaching. The Discover Mobile App allows you check your credit card balance, set a reminder for when your statement is available, see when a payment is due, and notify you when a payment has gone through.
Set a recurring reminder of your own on your smart device.

Is it better to pay off your credit card each month or keep a balance? When you pay your balance in full every month, you could avoid interest charges or the loss of your grace period. A grace period is typically from the day a charge posts to the payment due date on your following credit card statement.

3. Spending more than you have

The impulse to spend more than you have can be hard to resist as a college student, but it’s the best for your financial health. There are several important reasons college students and recent graduates should avoid excess credit card usage.

First, by relying heavily on credit cards you might create debt that’s hard to overcome. When you graduate, that debt will mean starting a new career with income already earmarked for paying bills. Developing responsible financial habits early on is important for long-term financial stability.

Second, using too much of your available credit can impact your credit score. Your credit utilization makes up about 30% of your credit score. A low credit score can make it difficult to secure loans or favorable interest rates in the future. This could make important financial goals such as buying a car or a home much harder to achieve. When credit cards are used responsibly, a college student can maintain a good credit score and establish themselves as reliable borrowers.

The average credit card debt for Americans was an estimated $6,329 through the second quarter of 2024. This number has been on the rise for the last year. Creating a spending plan may help you avoid this financial pitfall.

Did you know?

A secured credit card may limit the amount you can spend because your credit is limited to the amount of your security deposit. This option offers the card issuer built-in protection from a cardholder who might default on a payment.

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It is not uncommon for those who are new to credit to get a secured credit card because they don’t have enough credit history. Lenders use credit to assess the likelihood a potential customer will pay their bills on time. Using the Discover it^® Secured Credit Card helps you build your credit history with responsible use.¹

4. Avoiding your card altogether

The instinct to pretend your card doesn’t exist may come from good intentions. You might be thinking that you don’t want to bury yourself under a mountain of debt. But one of the points of having a credit card is to build credit history, which you do by showing your ability to borrow and repay money.

The Discover it^® Student credit card can help cardmembers track spending and makes paying bills simple through the Discover Mobile App. Plus, there are rewards and benefits for using the card: you can earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all your other purchases—automatically. No maximum, no activation needed.

How do you create a balance between building a credit history and not going into debt? Consider a spending plan that uses your card for set purchases each month, like gas or groceries. That way, you’re still building credit while keeping your monthly bill manageable.

5. Opening multiple accounts

You might find credit card offers enticing, especially when your favorite retailers offer a good discount just for signing up. While there’s no magic number for how many cards are too many, it’s usually best to stick with just one card when you’re starting out. Fewer cards can help make it easier to track your spending and develop smart credit habits. Once you’re successful with one card, you can think about adding more to your credit mix.

If you decide to open another account, be aware of the interest rates or annual fees. Continue to plan to pay your balance if in full and on time, if possible.

6. Paying cash advance fees

One of the biggest mistakes any credit card user can make is paying a cash advance fee. A cash advance lets you borrow cash from your credit card, usually limited to a percentage of your total credit line. However, fees and interest can make a credit card cash advance a costly option for a short-term loan.

Cash advance fees and interest kick in immediately when you withdraw cash from an ATM using your credit card. While a cash advance fee is typically a percentage of the amount withdrawn, the interest rate is usually higher than the rate you’d pay on standard purchases.

It’s best to only use cash advances in emergencies.

7. Waiting to notify your issuer of a lost or stolen card

If you lose your credit card, freezing your account can give you a chance to find the card without canceling it entirely. With Discover, if you misplace your card, you can prevent new purchases, cash advances, and balance transfers in seconds with the Freeze it^® on/off switch on our mobile app and website.²

You should report stolen or lost cards immediately to your credit issuer. According to the Federal Trade Commission, consumers have limited liability for unauthorized charges or fraudulent credit card charges under the Fair Credit Billing Act. You’re never held responsible for unauthorized purchases on your Discover Card.³

Waiting too long to report your card as lost can leave you vulnerable to identity theft. A thief can steal your identity well before you’re even aware you can’t find your card. Consider also using identity theft protection services, which can help you identify potential fraud.

The bottom line

It’s a big responsibility to manage your first credit card. The best way to be successful is to understand how credit cards work and setting good credit habits from the start. Avoiding the mistakes listed above should get you started.

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