4 Tips for College Students to Avoid Credit Debt
In college, between juggling morning classes and late night study sessions, you’re busy socializing with plenty of new friends and settling on a major that will propel you to success.
The last thing a college student wants to deal with is credit card debt.
But considering that 34 percent of college-aged cardholders do not pay their monthly balances in full, this can become a concern for some. While you want to build a credit history for things like auto loans or even a mortgage upon graduation, ending up in debt can have a negative impact on your credit score — and your life.
“While car loans and mortgages might seem far off, handling credit responsibly now could help you gain access to lower interest rates in the future and potentially be more creditworthy on your applications,” says Christine Forman, a marketing director for Discover. “Creating a good credit foundation means setting good credit habits now.”
Instead of leaving things to chance, consider these four strategies to help ensure you leave campus with a solid credit history and — just as important — with good credit habits.
1. Consider a Secured Credit Card
A secured card allows you to draw upon money you’ve deposited into an account linked to the card, typically with that amount equaling your total credit limit. This initial amount of funds was deposited with the card issuer to ensure that, in case you default, the money is there for them to recoup.
A secured credit card works the same way a credit card does, however, allowing you to make purchases up to your agreed-upon limit and charging an interest rate if you don’t pay your balance in full at the end of the month. A bonus? Many issuers will report to the three major credit bureaus to help you build a credit history.
2. Opt for a Student Credit Card
If you have a short credit history, you may consider applying for a student credit card.
For novice users watching their dollars, there are several benefits. For example, the Discover it® Student chrome Card lets cardmembers earn rewards on purchases and stay up-to-date on their spending with tools such as a Spend Analyzer. You also can make payments on your mobile phone through the Discover Mobile App.
Especially attractive for college student — you can get $20 cash back each school year that your GPA is 3.0 or higher for up to five years after the account is opened* and 2% cash back on purchases at gas stations and restaurants on up to $1,000 in combined purchases each quarter.
“Some card issuers even offer tools to stay on top of your financial health,” says Forman. “For example, Discover offers student cardmembers ways stay up-to-date on their spending with tools such as a Spend Analyzer, so you can see where your money is going each month and set plans to responsibly spend.”
3. Don’t Open Too Many Card Accounts
That said, you may be tempted to open many cards to for a greater overall credit line, but this could lead to overspending and accruing debt. What’s more, many cards charge an annual fee, which can add up when you consider the number of cards you have.
You also want to be aware of your debt-to-income ratio, especially when you apply for a loan post-graduation. Lenders that see multiple cards with high credit lines under your name might be wary that you’ll max out those cards and be unable to make your loan payments.
4. Download an App with Bill Alerts
One easy way to accrue debt is failing to make your monthly payments on time and incurring late fees and higher interest rates as a result. Avoid this by downloading your credit issuer’s app, which may offer alerts to help. For example, with the Discover Mobile app, you can opt into receiving alerts when your statement is available, your payment is due, your payment has posted, among many others. Some other examples include Mint, Bill Keeper and Prism.
Get Cash Back on Gas and Restaurants with Discover it® Chrome.
*Good Grades Rewards: Good Grade Reward only available to new cardmembers on or after 7/23/2015 who indicate on their application that they are currently enrolled in college, and whose accounts are current and remain open when the Good Grade Reward is requested. Students with a Discover it® or Discover it® chrome card who have a GPA of 3.0 or higher (or equivalent) during a School Year (September – August) may apply at Discover.com for a $20 Cashback Bonus (“Good Grade Reward”). One Good Grade Reward per School Year, per account, up to a maximum of five (5) consecutive years from the date your account is opened. Terms of Good Grade Reward Offer are subject to change.