By Erin Lowry
Incoming college freshmen receive dozens of warnings:
- Mom and dad caution them to not get carried away with extracurricular activities and instead focus on their grades.
- Older siblings kindly suggest avoiding any beverage with the word "jungle" in the name.
- Financial experts yell, scream and throw their arms in the air about avoiding credit cards.
1. Credit Cards Help Establish Credit History
A credit card is a simple tool to both establish credit history and begin working toward a good credit score. Student loans help establish credit and can positively impact a credit score. However, part of Fair Isaac's (FICO) FICO scoring model depends on diversity of credit. And responsible use of a credit card -– making on-time payments, for example -– is a simple way to increase a credit score.
Credit cards also let students without loans establish their credit and spend four years proving they are responsible borrowers before graduation. Lest we forget, recent grads who don't want to return to their parents' basement will need a credit score to get their own apartment or house.
Parents concerned their child can't handle the credit limit associated with a credit card should consider having their child apply for a secured card to prove their responsibility before upgrading to the real McCoy.
2. Students Don't Always Have Cash
Some financial experts advise using cash to avoid debt because mindlessly swiping plastic doesn't register as spending money. Except cash is quickly becoming a relic of the past.
Plenty of young men and women are used to debit cards and use apps like PayPal or Venmo to pay back a friend instead of cutting a check or getting cash out at the ATM. If students don't have quick access to an ATM on campus, a credit card will save them if they're in a bind.
3. Online Purchase Shouldn't Use a Debit Card
College students are used to buying everything online. Unfortunately, the rise of technology also led to an increase in fraud and identity theft.
When They Get That Plastic
To avoid credit card debt and protect their credit scores, young adults need to be vigilant about paying their bills on time and in full. Credit card users should understand the ramifications of carrying a balance and paying interest on their debt. A credit card shouldn't be used any differently than a debit card, except you have to pay your bill at the end of the month instead of automatically seeing the money get deducted from your account.
The decision whether or not to apply for a credit card should be made based on self-awareness and fiscal responsibility. It takes a basic level of financial education to understand how credit cards work, the interest rates that get charged on debt and how easy it is to get trapped in a cycle of throwing money toward interest. But for responsible, independent college students, a credit card can help establish their financial footing.