Why Do You Need a Credit Card?
For many students the horror stories about falling victim to credit card debt make it easy to forget that there are many good reasons to sign up for a credit card as a college student. The most important reason is to establish your own credit history. When it’s time to transition from college to the real world, you will find that in today’s society it can be a very difficult without a credit record.
Your credit history is looked at by potential landlords, lenders, and even employers. You could find yourself turned down for an apartment or a car loan if you apply and there is no credit record for them to refer to. Even if you able to get approved, you could find yourself paying an enormous deposit or being charged an outrageous interest rate. Even getting the lights and telephone turned on when you do find a place to live could well cost you more if you don’t have credit. Without a credit card, many utility companies will require a $100 deposit which you won’t get back for a year.
Without a credit history, your lack of a payment record makes you an unknown, which means that everyone assumes that you are a high risk. Insurance companies check your credit, so you’ll pay more for car or other insurance. And when you do decide that it’s time for a credit card, finding one will be much more difficult. There’s a good chance you’ll be turned down by the major credit card companies who were begging you to become their customer when you were still in college. This will be because you don’t already have a revolving credit account on your credit report. This is credit’s Catch 22; you can’t build a credit history without having a credit card, and it’s hard to get a credit card without having a credit history.
While you are still in college this isn’t an issue because credit card companies aren’t worried about you not paying. They expect that your parents or another family member will be likely to step in if you run up a balance or fall behind in your payments. Once you graduate, however, you are finally on your own.
The only credit card that you will probably be able to get without a credit history at this point will be for a department store card. Unfortunately, these cards come with high interest rates, low credit limits, and don’t actually do much to build up your credit. In fact, some department store cards aren’t even reported to the credit bureaus. Even on-time payments made with these cards won’t help you to create a credit report.
The smart decision is to go ahead and apply for a credit card before you graduate. It could make your life much easier later on. You don’t need a lot of cards to build credit, just one or two low-limit cards. If your mailbox isn’t already full of credit card offers for students, there are many internet credit card search engines that can help you compare offers from issuers around the country. You also shouldn’t overlook offers from local banks and credit unions; they may be offering exactly the deal you’re looking for.
As for credit card debt, this can easily be avoided by simply charging only what you actually afford and paying off your balance in full, on time, each month. That way you will enjoy the benefits of having a credit card and establishing a good credit record without the risk of developing debt. When you graduate with a couple years of on-time credit card payments and a solid credit history, your transition to the real world will be much smoother.