Leaving high school and moving on to college or university is a time of life that tends to bring a lot of change, including a growing sense of financial understanding and independence. One way to help make that happen is by getting a credit card for the first time.
Start building credit, and be ready for the unexpected
Your post-secondary years are a great time to start building a responsible credit history. In doing so, you’ll establish yourself as trustworthy to lenders by the time you graduate and have new financial needs, such as a new set of wheels, a rental apartment, or maybe even your own home.
Access to extra credit can also come in handy if a sudden financial emergency strikes while you’re at school, leading to an unexpected expenditure. You might have to drop a bunch of money on a new computer or fixing a faulty car. With a credit card, big purchases like these can be easier to handle.
Another potential perk: some cards offer purchase protection, which can help you repair or replace a lost or broken item you bought with the card.
Look for a card that fits your needs and lifestyle
If you’re looking to land your first credit card, there are plenty of no-fee and low-fee options tailored toward post-secondary students, each with various perks and offers attached to appeal to different tastes and lifestyles. Take some time to look around, compare features and fine print, and find a card that fits your needs, rather than rushing to accept the first card you’re offered during Frosh Week, or taking one because it comes with a cool free gift.
Perhaps you love to travel and can’t wait for your next getaway. Or maybe you’re going to school far from home and need to fly back and forth. With a no-fee travel rewards card, your spending will earn points or AirMiles that you can redeem for trips and travel. Some cards even offer fee-free transactions in select foreign countries, further reducing the cost of student sojourns.
If earning travel rewards isn’t your thing, other cards offer a variety of choices, whether it’s cash back on a percentage of your spending, points that you can redeem for groceries or items from popular stores and brands, even tickets to movies or dining and entertainment options. Whatever your tastes, chances are there’s a credit card that helps you enjoy it a little easier, or more often.
What not to do, and how to avoid it
What you don’t want to do, of course, is go wild with your new credit, racking up big bills that bury you in debt and take months (if not longer) to pay off. Getting stuck in an early hole will dent your credit score before you’ve ever had a chance to build it up.
Resist the temptation to get more than one card – one should be enough for now. Ignore the spending limit on whatever card you choose and, instead, never charge more than you can afford to pay off each month. Set up reminders to pay your bill on time and in full. That way you never have to carry a balance and pay punitive interest rates, which can quickly wipe out the value of any rewards you may earn.
If you struggle with spending, one alternative to consider is a prepaid credit card. Typically, you either buy a fixed-value card or one that lets you load funds from a linked savings account. With a prepaid card, you’ll never spend more than you have, and can set responsible limits that help you control your spending urges and learn to handle credit more effectively.
Stay well under your spending limit for best results
Exceeding the limit on your credit card can lead to costly fees and charges, reduce your credit score, and also make it hard to slow down your spending enough to stay under the cap.
Chewing up too much of the spending limit on a credit card is a red flag for lenders, because it indicates a high credit utilization ratio. To put yourself in the best light as a borrower, keep your credit utilization ratio around 30 per cent or lower. Regular payments at that ratio will help increase your credit score and make long-term borrowing easier.