Pros and cons: Having a credit card as a student

Credit cards as a college student can be both a good idea and a bad one depending on how it's used.

Fifty-percent of college students own up to four or more credit cards, according to debt.com

The mention of credit cards in the same sentence as college students is often associated with words like debt, irresponsibility and dangerous. There are a lot of stories about the misuse of “free money.”

The Simple Dollar shared a story of a woman named Whitney, who currently has a debt balance of $55,000 that started when she was just a first-year in college. Whitney used credit cards on purchases that were small and could easily be paid off, but she didn’t keep track of the purchases resulting in large bills each month that as a college student were not too high to feasibly pay off.

When Whitney was 32, she had to declare bankruptcy because she was never able to get a good control on her spending and keep up with her payments. This story is one of many similar stories on debt and college students.

However, while there are an abundant number of cons when it comes to credit cards, there are also many pros.

“One of the biggest pros is that it can help you establish a credit history for yourself,” Justin Crouse, assistant professor of accounting at Wartburg College, said. “Once you graduate and you’re looking to get an apartment or get a new car, when you are in negotiation one of the things that will get checked is your credit history.”

A credit history is established by repaying debts in a responsible amount of time, according to usa.gov/credit-reports. A credit history affects a personal credit score, which is an assigned number based on how efficiently a person pays off debt.

“That positive history allows you to show that you have been able to use credit responsibly,” Crouse said. “That can lead to down the road is that maybe you get approved for things that you might not have gotten approved of earlier or you might have a lower rate of interest because your credit score is better.

Nana Quaicoe, assistant professor of economics at Wartburg, said that one of the benefits of having a credit card in college is that it helps students learn how to manage personal finances earlier in life.

“Having a credit card helps you understand how to keep a budget, how to pay off your credit card eventually,” Quaicoe said. “One thing that I always tell people is don’t spend beyond your means and don’t try to be too extravagant.”

In order to use a credit card responsibly it is important to use it for necessities only, Quaicoe said. To aid in this, students can use a credit card with a lower credit line.

Something that not a lot of people take into account when deciding whether or not to get a credit card is the different incentive plans. According to Discover, college students receive one percent cash back on overall Discover purchases and two to five percent cash back on specific purchases, such as food or gas, depending on which Discover card is obtained.

“If you use those cards responsibly, put something on it and pay it off at the end of the month, it's basically free money to you,” Crouse said. “Everything you bought is now one to two percent cheaper than it was before.”

Crouse explained that in order to be able to effectively use a credit card responsibly in college and receive all of the incentives and benefits that credit cards have to offer, it's important to pay it off by the end of each month.

“The interest rates on credit cards for 18 to 22 year-old people can be very, very high, so racking up a balance that reaches a point where we aren’t able to pay it back at the end of each month, is a really significant additional cost that people aren’t aware of,” Crouse said.

“Just one month of missing that payment or not being able to pay it off, can undo all of those positives that you’ve done, earning those 'free incentives’ along the way.”

Originally published in the Wartburg Trumpet.