What every college student needs to know about getting a first credit card

Getting a credit card can be a smart financial move for college students, offering a range of benefits and opportunities to build a solid credit history early on.

According to student loan provider Sallie Mae, about 57% of students have a credit card. Student credit cards facilitate financial approvals, can help build good credit, and impart valuable financial lessons. But credit cards also carry risks such as potential long-term debt and high interest rates, making it crucial for college students to manage their spending responsibly.

Rules have changed in recent decades to provide more protections for students. In the 1980s, credit card soliciting on college campuses was not uncommon. In fact, universities often partnered with credit card companies to offer credit cards that featured the college’s mascot on the card. That changed after the financial crisis, with the 2009 Credit Card Accountability Responsibility and Disclosure Act, which offered protections to consumers to avoid getting into credit card debt.

Credit card companies now must stay at least 1,000 feet away from college campuses when offering gifts to students in exchange for completing credit card applications. It is also much harder for college-aged students to get a credit card on their own — anyone under 21 must have an adult cosigner or show that they can repay their credit card balance through their income for a standard credit card.

Newer regulations have made it more difficult for college students to get credit cards, but also protect them from misusing cards and developing bad debt habits at a young age. Now, many students have credit cards connected to their parent’s bank accounts with set amounts they can spend each month.

Student-branded credit cards can be a good option

Student credit cards, specifically, are a good option for financial beginners, and experts say it is important for students to have the opportunity to build credit and maintain a positive credit history so after graduation they can secure attractive rates on personal loans, auto loans, mortgages, and be approved for an apartment lease.

Emily Rabbideau, a senior at the University of Alabama, has had her student credit card for seven months and she already feels like she is in a better position with her financial future.

With her college graduation not far away, Rabbideau knew she wanted to put herself in the best possible position for post-grad financial decisions, such as buying a car or applying for an apartment lease. When she received a flyer about a Discover student credit card in the mail, she immediately completed an application for it.

“I wanted to start building a credit score, and I figured I was spending all this money anyway so I might as well get some points and some cashback rewards on it,” she said.

Previously denied for a non-student credit card, she was accepted for a Discover it Student Cash Back Card after completing a 5-minute application. Seven months later, navigating her finances with a student credit card has been smooth sailing.

The No. 1 personal finance habit for new card users

Her main tip for anyone considering getting a student credit card is to make sure you never put yourself in the position of spending more than you can pay back in full when the next statement arrives. That means treating a credit card like a debit card — any money being put on the card needs to already be in the bank. Never carrying a balance allows Rabbideau to stay stress-free when it comes to paying off the card.

“I pay my credit card back right away and never carry a balance ever,” she said. “Just because your credit card says you could spend $1,500 a month, let’s say, that doesn’t mean you have $1,500 in your bank account to spend. If you don’t pay it back right away, then you’re going to have to pay more than that and get a hit to your credit score.”

Dr. Preston Cherry, a member of the CNBC Financial Advisor Council, says paying back a credit card immediately is critical.

“You want to try to avoid carrying a balance because it’s going to charge you interest, and interest is going to be a lot when you are new with your credit history or your relationship with credit,” said Cherry.

Any balance not paid off at the end of a statement period will be charged interest the following month, and if a student continues to struggle to pay off the balance, the interest will compound. Interest rates for student credit cards also tend to be higher than for a typical credit card given the lack of financial experience. The interest rate for a student credit card can also be very high because students have no previous credit history, as high as 29% in some cases, Cherry said. According to LendingTree, the average interest rate on a student credit card was near 24% in September, and the maximum interest rate was near 29%.

“It’s okay to enjoy life, but you can’t buy things that you can’t afford, because if you can’t pay them back, then that compounding interest starts to become a big issue,” Cherry said. “The stress of debt affects your future financial decisions, your lifestyle flexibility, and it affects your emotional wellbeing.”

Maximizing card rewards and credit scores

There are also many benefits of disciplined credit card use by students, including points and rewards.

Once Rabbideau received her student credit card, she started to use it on all her purchases — rather than use her debit card — because of a 5% cash back feature as part of the card rewards. She takes the money she gets back from purchases and puts it into a savings account.

Meanwhile, use of the card was leading her credit score to improve.

“The first six months it was just tracking all of my purchases, and then I got my credit score in June, and was excited to see it go up over the months,” she said.

Getting a better credit score can also come with new risks to manage — she saw an increase to her credit limit at the same time.

Cherry encourages students to apply for student credit cards as early as they can to have years of good credit history under their belt.

“A good credit score will give you more access to borrowing, and a decrease in borrowing costs, whether that is a car loan, house loan, or some other type of loan,” he said. “If you don’t have a credit history to begin with, these costs are all going to be higher.”

When you’re out of college, a good credit score will also help you apply for new credit cards with better rewards. Students do not have to stop using a student credit card once they graduate. If an account is in good standing, it can be changed over to a regular credit card, often with a higher credit limit.

Credit card apps have made it easier to manage payments, and never miss due dates. Accounts can be set up with automatic payments covering the full statement balance so there is never the risk of forgetting. There is, however, the risk that if not spending wisely, the student’s bank account being used to make the autopayment won’t cover the balance.

If a student can’t make a full payment in time, Cherry says it won’t help to give yourself a hard time, but it is is time to take action to limit the damage to your credit history, and make sure you never make the same mistake again.

“No. 1: Don’t get too down or have too much shame or guilt about it. No. 2: Do better immediately next month. Only time doing the better behavior and habit will improve your score,” he said.

Even just one missed month of payment means three to six months of good behavior is needed to attempt to have the late payment reversed on your credit report. If you continue to miss payments, it’s going to take longer to repair credit.

“If you correct the error immediately, you shorten the time frame of credit repair,” he said.

A college student interested in applying for a student credit card on their own typically needs to be at least 18 years-old, enrolled in college, and may be asked to state an income level, or show proof of income — such as from a part-time job, work/study program, grants or scholarships, or an allowance from family — as part of the application process.

Another way to build credit history is to opt for a secured credit card. Similar to a student credit card, a secured credit card is a good option for applicants without a credit history or proof of income. A secured credit card can also help you build your credit score, as well as benefit from card rewards. With a secured credit card, the applicant typically must pay a cash deposit and is help to a relatively low credit limit.

Having a credit card can be a strategic financial decision for college students. With responsible repayment habits, a student credit card can be a powerful tool for securing a better financial future. While there are always opportunities to build credit after college, having access to a student credit card and using it wisely is a great tool that can place you at a financial advantage once you graduate.

—By Mariana Apostolatos, CNBC Intern