Graham Christian
When you’re in college, you’re going to make some errors in judgment. Whether you forget about an assignment worth 80% of your final grade, discover a package of Oreos does not equal dinner, or find yourself battling a hangover in an early morning class, you will make mistakes - and it’s all part of learning.
One area where mistakes can cost you big, however, is credit cards. A significant blunder with your credit can have consequences that may follow you for years after graduation, so knowing the do’s and don’ts regarding that piece of plastic in your wallet is essential. Here is our list of the most common mistakes students make with credit cards:
- Making only the minimum payment
- Paying bills late
- Letting friends borrow your card
- Waiting to report a lost or stolen card
- Applying for multiple cards at once
- Overspending on your credit card
- Signing up for the first credit card at the campus fair
- Taking out cash advances
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Paying the minimum amount on your bill
We all know the feeling: you get your credit card statement, stare at the total owed, and feel your stomach drop. Then you see the much-less-scary number under “minimum payment” and feel relieved. If that’s all it takes to make the bill go away, why not do it?
Two words: interest rate. Interest is a set percentage that your credit card provider will charge you for not paying off your bill in full each month. Every time you fail to do that, that interest is piled onto your balance owed again and again, building and growing until your debt eventually becomes unmanageable.
How to avoid it
The simplest way is to pay your bill in full each month, and the easiest way to do that is to make sure that your statement will never be more than you can handle.
Set up a simple budget (download our handy student budget template here) and stick to it. If you know exactly how much you can charge to your card every month, you’ll never have a nasty surprise when it’s time to pay it back, and you’ll avoid collecting interest on top of what you already owe.
Late bill payment
The most significant advantage to getting a credit card in college is that it gives you the ability to build a good credit score early, which will help you get a better rate when applying for car leases or a mortgage. A long history of good credit makes you look like a dependable person to lenders, but you won’t get that if you don’t pay your bills on time.
While there are many things to keep track of in college, unpaid or late bill payments are the number one destroyer of credit, so always be punctual.
How to avoid it
If you’re confident about your budget, you can set up an automatic payment with your credit card provider, ensuring that you’ll never miss a statement. It’s important to note, however, that you’ll always need to have enough money available. If not, your account could be overdrawn, which could damage your credit score.
Letting friends borrow your card
If you’re the only person in your friend group with a credit card, you’re probably going to be quite popular, and someone may even ask if they can borrow your card for an online purchase or to rent something.
While everyone wants to be a good friend, this is a dangerous practice. You alone are responsible for your credit card, so anything that happens as a result of its use (or misuse) is going to fall on you. Waiting on money owed from a friend when you have a large bill due can put a strain on your relationship and put your credit in jeopardy, so it’s best to either ask for payment up front or politely refuse.
How to avoid it
Credit card providers love offering deals on college campuses, so it shouldn’t be hard for any card-less friends to get their own credit cards. Instead of lending your card to someone else, offer to help them pick out one for themselves. This productive suggestion sounds a lot better than simply saying “no,” and it could help avoid an awkward exchange.
Waiting to report a lost or stolen card
There are few worse feelings than discovering your credit card is missing. Whether it was stolen from you or simply misplaced, waiting too long to report the missing card to your provider can have messy consequences.
The longer your card goes unreported, the more time the thief (or any not-so-nice person who happens to find your lost card) has to rack up charges and ruin your credit. If this happens before you report it, it will be much more challenging to prove that the purchases aren’t yours, so you must deal with the issue immediately.
How to avoid it
As soon as you discover your credit card is missing, contact your provider and report it. If you’re able to do this before any false purchases are made, your bank will waive your responsibility, and your credit score will stay intact.
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
Applying for multiple credit cards at once
Credit cards can help your credit score. So it would stand to reason that the more cards you have, the better your credit will be, right? While technically true if you’re a responsible and experienced cardholder, this philosophy rarely works for college students just beginning their journey into credit.
Applying for multiple credit cards may get you a bunch of great rewards and bonuses right away, but the party will end pretty quickly once you discover how difficult it is to juggle multiple bills. If you’re not able to keep everything organized, you could soon find yourself with numerous debts (all with interest, of course) hanging over your head.
How to avoid it
Keeping track of your spending and learning to pay bills on time are life skills most of us take a while to learn. If you’re new to credit cards, stick to one and focus on using it responsibly to build your credit score.
While having multiple cards for different uses can be a smart way to make your credit work for you, it’s only beneficial if you’ve got a great credit score. Take your time, go slow, and only move on when you feel you’re truly ready.
Overspending on your credit card
For most of us, the immediate allure of a first credit card is that it almost feels like free money, but that kind of thinking can be dangerous. Few things in life come for free, and your credit is no exception. While there are many big-ticket temptations in college, the money you spend on your card needs to be paid back within the month if you don’t want to acquire interest, so behaving as though the credit you use is consequence-free can get you into deep trouble fast.
There’s also the matter of your credit utilization ratio, which tracks how much available credit you use per month and plays a big part in determining your credit score. Experts recommend spending no more than 30% of your limit, so repeated spending sprees can make this percentage skyrocket, hurting your score as a result.
How to avoid it
Think of the credit available on your card as your own money. Before purchasing something, ask yourself, “Is this something I would be able to afford without a credit card?” If the answer is no, then you’re better off walking away.
Signing up for the first credit card you see
Getting your first credit card is exciting, and providers on campus will offer everything from cash incentives to free swag in exchange for your signature on a contract. While they might all seem great, realizing months down the road that you locked yourself into a terrible deal can be frustrating and embarrassing. Rewards are great, but high-interest rates and annual fees are not. If you don’t do your research, you could be stuck with a card that costs you more than it gives you, and that’s no fun.
How to avoid it
Take the time to learn about the different cards available to you and what you need in a credit card. This information will guide you in the right direction, helping you find the perfect match that will start you off on the right foot.
Read the fine print as well.
Credit card providers intentionally advertise the best parts of their offers in big, bold text, but you can find the truth in the smallest font near the bottom of the page.
That’s where you can learn about offer expiry dates, the actual interest rate and annual fees once the introductory period ends, and other important information that will help you make an informed choice.
Using your credit card for a cash advance
Credit cards offer you the ability to withdraw cash from your account, known as a cash advance. It works similar to a debit card, except that the cash you get is reducing your available credit instead of being taken from your chequing account.
While this might seem like a great idea when you’re broke and in desperate need of money for a night out, it’s also a risky move.
Cash advances come with a typical transaction fee of 2-4%, plus their interest is generally higher than a standard purchase rate and will kick in as soon as you take the money out. While less dangerous than a third-party payday loan, it still puts you on very shaky ground.
How to avoid it
If you’re stuck for cash, investigate other options that may be less hazardous. Asking your parents for a loan may be slightly embarrassing, but chances are they’re not going to charge you interest on repayment. Picking up extra work or starting a side hustle like dog-walking or tutoring can also be great ways to make sure you’ve got some money lying around for emergencies or simple weekend fun.
The bottom line
After reading about all the pitfalls of credit cards, you may want to avoid getting one altogether, but that would be a little short-sighted. Credit cards are a great way to build up your credit score, and getting one in college means that, once you’re working full-time, you’ll already have a head-start on developing your credit history and a solid track record of payments. The longer you’ve been a responsible credit user, the better you’ll look to future lenders, so it's worth it to get started early.
While there are plenty of possible traps to get caught in while learning to navigate the world of credit, there’s also a lot you can do to educate yourself before you even sign up for a card (such as reading our guide to credit card basics).
Getting a credit card and learning how to use it properly will provide you with a long credit history you can benefit from over the years to come, so do some investigation and apply for a card that works best for you. Use the tips listed above to keep you out of debt and worry-free, and leave a comment below with any other advice you’d like to share.
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