Ask an Expert: How a Credit Card Can Help in College

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A young reader recently wrote in with this question – one that might surprise a few parents…

I’m a 21-year-old college student thinking about moving out and buying myself a car. I did some traveling before starting college, and my bank account has been repeatedly wiped out from various trips overseas. Now I need to think about replacing my 1990 Honda and finally moving out of my parents house. I have about $2,000 in savings and was planning to use my summer savings to pay for a newer car in cash, somewhere around $4,000. I am wondering about opening a credit card for the first time – should I go for it for either of these things? Or should I just stick with cash as much as possible?

I bank with BECU, I know they have a great credit card for members, so what is your advice on choosing a card for someone like me? Thanks so much!

– Danielle

It sounds to me, Danielle, like you’re on the verge of gaining some financial maturity – graduating soon from college, moving out of your parents’ house, and giving up on traveling beyond your means.

At the same time, you’re wondering if getting a credit card is the responsible thing to do, or if you should “stick with cash as much as possible.” My answer may surprise you.

I think you should get a credit card – but not to finance new purchases. I love the fact that you’re currently paying cash for your purchases rather than taking out loans. It’s a great habit for a young adult to stay out of debt as much as possible. As so many of your classmates will learn, once you start accumulating credit card debt, it’s very difficult to pay it off.

Why should you get a credit card?

Using a credit card responsibly is one of the most important ways to build a strong credit score. This will lower your car insurance rate, help you qualify for a mortgage in the future, and even pass security checks necessary for some jobs.

Having a credit card helps to improve your credit report’s payment history, length of credit history, and the types of credit used. Each of these are critical factors that make up your FICO score. That said, it’s crucial you continue to buy only what you can afford. That means always paying your balance in full and on time. If you think that you’ll have a problem doing so, stick with cash.

What kind of card should you get?

BECU, your local credit union, does offer its own credit card that looks fine, if a little plain vanilla. If you wanted to try something else, I would go with the Citi Forward card for college students. It offers 5 “ThankYou” points for every dollar spent at restaurants and on entertainment, and 1 point per dollar elsewhere. These points are worth as much as 1 cent each toward a variety of rewards including travel and gift cards.

By taking your first cautious steps into the world of credit cards, you can move forward with your personal finances while improving your credit score.

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