The debate over whether or not college students should own a credit card is certainly a sensitive one. Some would say it's simply madness for a college student – with so much temptation to spend, yet little financial literacy and no solid income – to have a student credit card.
However, I’d argue that students should sign up for a credit card when they start college, so long as they're aware of (and follow) a few rules. What follows is my argument for why students should get a credit card, as well as a few things to bear in mind if you're a college-student-to-be or parent.
Why Students Should Get a Credit Card:
1.) Emergencies: Going away to college can be a bit of a financial minefield when you’ve spent the last 18 or so years of your life living at home with few (or zero) financial responsibilities. So rent payments, utility bills, phone contracts and everything else can come as a bit of shock to the college student who has only ever made minor disposable income-oriented purchases in the past.
So if say an electricity bill flies under the radar and the lights go out, a credit card in such a situation (let's face it, an emergency) could seriously come in handy. Plus, the credit card itself is also a back-up if you lose your debit card; many college students will probably only have the one card – a debit card – and if you lose that it can take at least a few days before you get it replaced. Thus, the credit card offers a backup solution for the short interim period.
2.) The credit limit is small, so you can’t run in to too many problems anyway: Most banks won’t give a student a credit limit of more than $1,000 or so initially (often less), so you’re never going to be able to run up too many debts before your card starts getting declined. (Here's a tip for credit newbies: Pay back your balance each and every month to avoid any kind of debt or interest at all!)
3.) Building up your credit score will make it easier for you to borrow later down the line: Now the counter argument to this might be that college students – who are between the ages of about 18 and 22 – won’t need loans or a mortgage for some time anyway. Unfortunately, in most cases this just isn't true.
Think about it: as soon as you finish college you might need to rent an apartment or buy a car. And this will be at a time where you won’t have a huge amount of savings and will have only just started working. This means you’ll possibly need credit, and for that you’ll need a good enough credit score and some type of credit history. Remember that no credit history is in many ways just as bad as a bad credit score since the lender has no information to go on.
4.) A credit card is a useful educational tool: Experience and discipline in paying attention to one’s financial transactions and keeping everything under control can’t be taken for granted. So a credit card will provide a way for students to learn the importance of mindful and responsible spending. I say this because if they manage to meet their payments and keep an eye on their spending activity, then that will be good practice for when they’re dealing with bigger funds and more transactions later on in life. Yet on the other hand, if they do get into some trouble, it will hopefully be a valuable lesson learned early in life.
Things to Remember:
1.) Make sure you view your credit card as nothing more than a vehicle for building up your credit score, and as a back up in emergencies rather than ‘money to be spent’: This is the key reminder. I’d almost go as far as to say don’t even carry it around in your wallet if you feel you lack self discipline, and rather to use it selectively now and again for some of the bigger purchases which you know you’ll be able to pay off immediately, or for emergencies. That way, you’ll build up a clear psychological and physical distinction between you, your credit card, your debit card and your cash that will encourage you to reach for the credit card only at the appropriate and necessary times.
2.) Pay off your purchases promptly so you don’t start accruing interest and harming your credit score. This is a no brainer. But for the college student with little experience managing their finances, it’s a point that needs to be driven home right from the very beginning.
3.) If you're having trouble making credit card payments, go to someone for advice and assistance before things get out of hand: If things do go wrong, then rather than panic or put off the problem (which will only make it worse), swallow your pride and ask for help from a parent or trusted adviser before the situation gets any worse.
