Graham Christian
Opening your first credit card in university or college can come with a bit of anxiety, but it often makes practical sense. Being a student requires a lot of recurring costs (books, tuition, food, transportation) and using a credit card to pay them not only earns you cash back but helps build good credit as well (which will be a benefit in later years when you want to lease a car or apply for a mortgage).
But credit cards aren’t without their risks. Make sure you know what to do (and what to avoid) by reading our tips for first-time users below:
- Do your research on student credit cards
- Pay your bills on time
- Avoid overspending
- Stick to one card
- Don’t let someone else use your credit card
- Don’t take out a cash advance on your credit card
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Do your research on student credit cards
Many banks try to entice students into signing up for credit cards with free gifts and incentives. Look past those distractions to the most important information, then compare different cards. Ideally, a good student credit card should have the following:
- No annual fee
- Low interest rate
- Low credit limit
- Cash back
Also, think about what kind of rewards make the most sense to you. For instance, a card that rewards you in SCENE points isn’t going to be of much use if you never go to movie theatres, whereas a card that provides you with cash back on groceries and transportation may go a lot further if you live off-campus.
Pay your bills on time
Credit cards are an excellent way to build credit — if you pay your bills on time. Your payment history plays a big role in deciding your credit score, so you want to make sure no bill ever falls through the cracks. Put a monthly reminder on your phone, or call your bank and set up automatic payment for the full amount every month (you can even do this if your credit card is from a different bank). Just make sure you’ll always have enough money available. If not, you could overdraw your account, which will result in fees and a negative impact on your credit score.
Avoid overspending
Owning a credit card for the first time can give you a feeling of independence, and while you may start off with good intentions, it’s easy to succumb to temptation. This could be in the form of big impulse purchases like vacation tickets or electronics, or letting a lot of smaller charges add up until they’ve formed an intimidating wall of debt. To make matters worse, most credit cards charge an interest rate in the double digits, so you’ll be in a losing battle trying to pay off your card faster than the interest can grow. To avoid this, create a budget and keep track of your spending so you can always pay off your balance in full each month (use our downloadable student budget template). Having a strict spending limit will keep you from accruing debt and keep your credit utilization in check.
What is credit utilization?
Credit utilization refers to the amount of available credit you use each month, and it’s an important factor in determining your credit score. Experts recommend keeping your credit utilization around 30%. That means if you have a credit limit of $5000, you want to make sure you don’t spend more than $1500 on your card per month. If your spending starts getting too close to your credit limit, your credit utilization ratio will skyrocket, hurting your credit score, especially if you’re unable to pay it off quickly. Many providers allow you to set up balance alerts on your account, which let you know when your spending is getting too close to or exceeding your set limit.
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Stick to one card
While having a number of active credit cards is good for your credit score, take it slow at first, especially if you’re new to having credit. It’s important to prove to yourself that you can spend within your means before you add more plastic to your wallet. Also, multiple cards mean there’s a higher chance you’ll lose track of bills and statements, allowing debt to pile up. Stick with one for now and use it responsibly, then move on to other cards when you feel you’re ready.
Don’t let someone else use your credit card
You might not think it’s a big deal to let your friend use your card in a pinch, but anything they spend on it, you are responsible for paying back. Plus, while it’s nice to think that the friends you have now will be friends forever, that’s not always the case. A former friend may not feel any obligation to pay you back for a purchase made on your card, and having to eat that cost isn’t a lot of fun. The best policy is to make sure you’re the only person using your card.
Don’t take out a cash advance on your credit card
A cash advance gives you the opportunity to withdraw money from your credit card up to it’s limit. While it might seem like a good idea when you’re broke, it’s generally not a great decision. Cash advances come with a typical fee of 2-4%, plus their interest rate is generally higher and will kick in as soon as the money is taken out. While still less risky than a third-party payday loan, it still puts you on very shaky ground. Before making that choice, explore other options (ask your parents for a loan, find temporary work, etc).
Find your perfect credit card in under 60 seconds - No SIN required
Tell us a bit about yourself
Answer some questions so we can personalize our recommendations - this won't impact your credit score
Check your eligibility
We confirm your eligibility with our partner, TransUnion. This will be a ‘soft credit check’ which you can see but lenders cannot
Find your perfect matches
We show you the cards you’re most likely to want and most likely to get
The bottom line
Opening a credit card as a student can be a great idea, but it takes education and responsibility to avoid the pitfalls. Use our tips listed above and download our student budget template to ensure you make the most of your first credit card, and leave any of your own advice in the comments below.
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The 6 Best Student Credit Cards in Canada for 2021