One of the best ways to start building credit and establishing independent finances as an adult is to use a credit card. It’s also exciting to know that you can expand your horizons when it comes to spending.
However, like many financial tools, a credit card can be just as devastating as it is helpful. Before you sign up, there are a few things you should know about student credit cards.
It’s not “your” money
One of the most exciting things about getting a student credit card is the idea that you can buy just about anything you want. It feels like you are getting some sort of a raise. However, it’s important to realize that this isn’t your money.
In fact, when you use a credit card, it’s a loan. If you pay it off each month, it’s a short-term loan and you may never have to pay interest on it, but it’s still a loan and it can cost you if you aren’t careful. Don’t buy something with your credit card unless you can pay it off quickly.
Student credit cards come with higher interest rates
Credit cards in Canada often have high interest rates. If you carry a balance, you will pay for it. Student cards, though, usually have higher interest rates than their non-student counterparts. This is because, as a student without a long credit history, you are considered a bigger risk.
It’s true you can use your first credit card to start building good credit, but until you get to that point, you can expect to pay a higher interest rate when you carry a balance. The best solution, as usual with a credit card, is to avoid carrying a balance.
You might not have the same rewards
If you can qualify for a non-student credit card, you might be able to score some sweet rewards. While many student credit cards do offer rewards programs, they usually aren’t as generous as what others have access to. When you build your credit, you can qualify for better credit card rewards programs.
These are good places to start building your credit
While student credit cards aren’t as attractive as other cards, the reality is that you might not be able to qualify for anything else. But that’s not exactly a bad thing. You can use your student credit card to start building your good credit history. It’s a perfect way to show that you are responsible with money.
Make it a point to plan your purchases and then pay off the card each month. After a few months, you will start building a positive credit history and you can get a good credit score. Once you have shown your ability to handle a credit card, you are more likely to qualify for a better card when you apply.