As a student you may be put off to the idea of getting a credit card. After all, what real benefit is there to paying for stuff you want with a card instead of cash?
If you're a tech buff, you may consider a mobile wallet along the lines of Apple Pay, Samsung Pay, Chase Pay and Co. to be a more trendy solution.
Throw in the fact that student spending really is becoming more reckless (see Money Matters report), and you would have every right to want to avoid becoming one of the ditzy care-free types flinging credit cards across Youtube screens.
But there is the issue of building your credit score and credit history, and while there are other ways to piece it together (you can get some ideas here), a credit card is by far the most viable and least complicated.
The longer you put off building good credit, the longer you will have to wait to get a business loan, mortgage, auto loan, a phone contract and many other credit-based services.
While getting a credit card is a near must in the early stages of your credit life, there are simple and clear steps you can take to get the most out of your card without becoming a victim:
Set Up A Recurring Payment To Cover Your Credit Card Bill
This is one of the smartest things you can do because not making your credit card payment on time will do exactly the opposite of building your credit - it will completely destroy it.
A recurring transfer automatically sends money from your bank account to the credit card company at the intervals and dates you choose. Set the date for the recurring payment several days ahead of your credit card's monthly payment due date just to account for weekends and holidays (many banks only process your transfer on working days).
Make sure that your recurring payment covers at least the minimum payment due, because as long as you pay the minimum amount required, your credit score won't be damaged.
If you don't have a checking account, consider opening one. Some banks include a certain amount of complimentary monthly recurring transfers with your checking account.
Make Your Payment In Full Every Month
The last thing you want is to pay to pay. When you use your credit card to spend money, you have until the end of that billing cycle to pay back the money you spent.
Credit card companies set a minimum amount which you will have to pay back every month. This is often as low as 1% of your total balance, plus interest charges.
While it's tempting to just pay the minimum, doing this will end up costing you in the long run because you will pay interest, determined by your credit cards APR, on the amount you do not pay back at the end of the month.
Since your APR normally compounds daily, you end up paying interest on the interest you owe. Over enough time, this system can multiply your debt many times over.
If you always spend exactly the same amount every month, then set up your recurring payment to cover the full amount. Otherwise, make it a habit to pay the remainder of your balance (what isn't covered by your recurring payment) ahead of the due date every month.
Use A Budgeting App
It's very easy to overspend, whether you use cash, a digital wallet or a credit card. But the advantage of using a credit card is that many great budgeting apps let you link your credit card account to your app account.
This allows the app to show real-time information as you use your credit card to pay. For example, if you budget $50 monthly for eating out, and then overshoot that budget using your credit card to pay, it will show up in the budgeting app.
That makes it very easy to keep track of spending and avoid overspending. Mint is one of the most popular budgeting apps, but there are several good ones to choose from.
Choose The Right Credit Card
The student credit card you get can make or break your credit building and money-saving experience.
Always use a credit card that offers a grace period. Doing so will ensure that you have time to make your payment and avoid paying interest. Some of the worst credit card charge you interest right from the posting date, meaning that the moment you make a payment with your card, you will start paying interest on that credit.
You should also choose a card with no annual fee (why pay to pay?), and as few other fees (penalty fees, foreign transaction fees, cash advance fees) as possible.
Additionally, you should use a student credit card that lets you earn rewards. Merchants pay good money to credit card companies every time you use your card to purchase something from them. It's only fair that you get a small part of this windfall for choosing to pay with a card instead of cash.
Using a card which does not reward you is basically leaving money on the table. It doesn't make sense.