Credit card usage among college-age students (those under 25) has increased more than any other group in the United States between 2013 and 2021. A credit card can be beneficial or harmful if you do not understand how to use it. For example, a credit card can help in emergencies, establish and build a credit history, and provide purchase protection. However, misusing credit cards can damage a student’s credit history and create continual debt.

As a student looking to obtain a credit card, it’s important to understand the basics of credit first. Below are a few factors to consider when applying for your first credit card.

Review Credit Report

Know what is in your credit report. Credit card issuers will require access to your credit report and score. Your credit report contains your credit history. It signals, over a period, how well you pay back what is owed to others. Although people may have little or no credit as students, knowing what is in your credit report is essential. Credit card issuers will use the information in a credit report to decide if you will be issued a credit card and how much you will be charged for interest or the annual percentage rate (APR). The more positive the information in your file, the lower the interest rate charged.

Likewise, the information within your credit report is used to calculate your credit score. You can obtain one free credit report each year from the three major credit reporting bureaus: Experian, Equifax, and Transunion.

Research Credit Cards

Research the various types of cards. Determine the type of credit card that best aligns with your lifestyle and needs. As a student, consider applying for a student credit card. This type of credit card is specifically for students because students tend not to have credit. Most often, the best credit cards are not for students due to their income or limited credit. Compare student cards for the best offers based on your circumstances as you would with other credit cards.

Compare Interest Rates

Review and compare rates and fees associated with each card. As with most purchases, practice comparison shopping. Compare cards before applying for credit. Federal law requires all credit card issuers to provide information regarding fees and rates, such as annual percentage rates (APR), annual fees, foreign transaction fees, cash advance rates, balance transfer rates, late payment fees, and monthly maintenance fees. These rates and fees are usually listed in a table format known as the Schumer Box on the credit card application. Use this box to make comparisons easier. Be sure to get to know and understand the rates and fees and what they entail.

Remember to keep life circumstances in mind when comparing cards. For example, if you do not plan to travel internationally while in school, you wouldn’t need to care much about the amount charged for this fee. On the other hand, pay particular attention to the APR. The APR is most often called interest rate, which is money you pay for using a lender’s money. The higher the APR, the more money you will be charged. Also, be cautious of introductory offers with spending requirements before you can qualify for the offer.

Repay What You Owe

Once you have compared cards, decided on a card, applied, and received the card, be mindful of other important factors. The use of a credit card can enhance or build your credit, or it can damage your credit. For example, how you repay the money you charged on your credit card is recorded in your credit report. That information will also impact your credit score. Paying your credit card bill on time and keeping the amount you owe on your card under 30 percent of the card’s credit limit will add positive information to your credit report and help to build your credit score.

Try to pay the entire balance each month. It may be difficult to pay the whole balance each month but try to pay more than the minimum amount due. Paying the minimum due will cause you to spend more and stay in debt longer.

Remember, a credit card is not bad and can be useful today. As with any tool, understanding how to use it wisely will make it good or bad.

For More Information

Visit the Finance and Career page on the Alabama Extension website for more information on money management.