Guide to Credit and Credit Cards for Students

If you’re a student or young adult, you’re most likely learning how to manage your money for the first time. Newfound financial experiences can be liberating.

If you want to buy something, you can make purchases with your first credit card. You can also pay for expenses without having to turn to a friend or a family member. Knowing how to build good credit and how credit cards work while balancing your independence will ensure stability in your financial future.

Good credit score can help you access various financial products and services that can make it easier to own a home, buy a car or even get a job. Learning how to build credit is a lifelong skill that can ultimately help secure your financial future.

Credit literacy, or the ability to understand credit, is key to navigating the world of credit cards. Familiarizing yourself with these terms can help you become more credit literate.

>> MORE: Credit Card Terms 101: Glossary of Common Credit Terms

Having a good credit score is an important way to build good credit. A credit score is a number that determines whether a person can obtain a credit card. A score within the range of 300-670 is on the lower end of the range and suggests you have bad credit. A credit score ranging from 670-850 implies you have good credit and are more likely to pay off future debts. Even if you have a low score, you still have opportunities to improve or raise your credit score.

A credit report is a statement that gives you information about your credit history and current credit situation. Credit card companies use the report to determine if you are eligible to receive additional credit. You can obtain a free credit report every year.

With more people using cashless forms of payment like credit cards, it’s important to learn about how to keep track of your finances and implement good spending practices.

Whether you’re a new college student or a young adult on your own, making good financial decisions can ensure stability. Here are two ways you can build credit.

You can start by building your credit with a secured credit card. A secured credit card is a card funded with money you have already deposited to pay off the card’s balance. For instance, if you deposit $300 on the credit account, your card limit will be $300.

Here are the steps involved with getting a secured credit card.

Another option is to become an authorized user. An authorized user is an individual besides an account holder who has legal permission to use a credit card. The user is not always responsible for paying off account balances and may have limited management control.

Getting your first credit card is exciting, but there are risks. If you’re not cautious about your credit card use, you run the risk of having a bad credit score. Below are some of the pitfalls to avoid.

Making too many charges on your credit card can lead to credit card debt, but there are ways to help you be debt-free. If you reach or exceed your credit card limit at the end of the month, it may be unlikely a credit card company will extend credit to you in the future. If you miss a payment or only make the minimum required payment, you also run the risk of having bad credit. A credit card balance can spiral out of control if not properly managed, leading creditors to close your card or charge you higher interest rates.

>> MORE: How Many Credit Cards Should a College Student Have?

Credit cards can parlay into future financial success. Many employers and landlords take credit scores as an indication of financial responsibility, so having good credit can make it easier to land a job or rent an apartment. If you have good credit, you may also qualify for lower interest rates on car loans and private student loans.

There are many options for students who want to apply for a credit card, but you will need to fulfill some basic requirements to be eligible. Best practices include completing an application, submitting documentation and checking your credit report.

≫ More: How Do Student Credit Cards Work?

Pay attention to fees, interest rates and other charges when looking for the right card. Whether you’re visiting a credit company’s website or your local bank, you must submit an application to be approved for a credit card. The credit card application process can take less than 10 minutes and will usually involve sharing basic information. Once you click submit, creditors will examine your debt-to-income ratio, which is how much money you earn relative to your debt. You should have a decision within 30 seconds of applying.

Some documentation is needed to apply for a credit card tailored to students. You will need to submit a form of ID that shows you’re at least 18 years old and enrolled in college. Often, you must also show your social security number to prove you’re a U.S. citizen or a permanent resident, in addition to providing proof of income. A part-time job can qualify as proof of income, but if you don’t have any income, you can add an employed co-signer to your credit card application.

Applicants should always check whether they have credit previously established in their name. Even if you haven’t had a credit card, you may find that you are the victim of identity theft. You should also make sure there are no errors in your credit history, which can happen if you have a common name. A credit freeze can prevent additional errors or fraud.

Showing an established credit history can be difficult if you’ve never had a credit card. If you are studying on a visa or don’t have documented status in the U.S., you may also need to provide additional paperwork.

Some issuers only offer credit cards to U.S. citizens or permanent residents, but you don't need to be a U.S. citizen to qualify for a credit card. Be prepared to verify your identity with some form of official documentation. If you are in the U.S. on a student visa, you may be eligible to qualify for a student credit card with a copy of your passport, student visa, immigration forms and an eligible U.S. bank account.

>> MORE: How to Get a Student Credit Card Without an SSN

With full-time course loads, most college students have limited time to make money. Student credit cards are specifically designed to give those with a low income a good chance at being approved. Some issuers also have set agreements with institutes of higher education which enable enrolled students to obtain a credit card, so it’s worthwhile to ask your school for guidance.

>> MORE: Can You Get a Student Credit Card With No Income?

Digital wallet payments and debit cards can help you bypass credit cards altogether. If you don’t qualify for a credit card, there are also steps you can take to build your credit to apply for another card in the future.

It’s likely you already pay for streaming services such as Netflix, Hulu or HBO, or use Verizon to make calls. Experian Boost is a feature offered by credit reporting company Experian which can help you get credit for monthly bills by making qualifying bill payments part of your credit file.

The more easily you can show you are serious about paying bills, the more likely you’ll have a higher credit score — and creditors will issue you a credit card. You can raise your score if you are a dependable tenant. Companies such as RentTrack and PayYourRent can issue reports to credit bureaus upon request, or you can ask your landlord to report rental payments directly.

A variety of resources can help students learn about building credit. The following sites are a good place to start:

• CashCourse: The National Endowment for Financial Education created this website to educate college students about financial literacy. College students can register for a free account to learn about financial issues like building credit.
• Affordable Colleges Online: This resource includes articles about how students can build credit and find affordable higher education options.
• Consumer Finance: The Consumer Financial Protection Bureau helps students, young adults, and their families manage money, build credit, save or pay for college, and repay student debt.
• My Credit Union: My Credit Union is a part of the National Credit Union Administration (NCUA). It offers assistance on how college students can understand their credit card statements and build their credit.
• Take Charge America: Take Charge America is one of the largest nonprofit credit counseling and debt management agencies in the nation. It works to help individuals and families achieve self-reliance, financial stability and independence.
• Center for Financial Independence: Hosted at Northeastern University, CFI helps students learn about financial literacy and building credit through workshops and presentations, student mentor financial counseling and a personal finance incubator.
• MoneySmarts: MoneySmarts aims to help students make informed financial decisions before, during, and after college. It can help you analyze what college will cost, make a budget and give you basic knowledge about borrowing.
• My College Money Plan: Funded by the Financial Literacy Project at Wichita State University, this free online course helps students and their families learn how to plan for life after high school and gain money management skills.