Building credit takes time. And a credit card could be a solid first step toward establishing good credit habits — and a good credit history.
While you’re still in school, consider starting out with a secured credit card. This type of card is easy to obtain for someone with no credit history, and it brings multiple benefits that are perfect for students. Use it wisely, and you’re well on your way to long-term creditworthiness.
Here are five reasons you should consider applying for one.
1. Start building a credit history before you need it.
You’ll soon realize the importance of a solid credit history. Having a decent credit score right out of school can help in many of life’s situations.
- Employers might check your credit. HR is more likely to hire you if you have good credit, which implies that you’re responsible.
- Get better rates on car loans. Most of the time, good interest rates go to those with good credit scores.
- Tilt the odds in your favor when renting. Credit often plays a role when you’re looking for housing. If your credit score is too low, a landlord might decline your application.
- Sail through a credit card application. You may need a credit card as you start making purchases on your own. Card providers prioritize customers with great credit.
Rather than building credit when you need it, start the process early. Pick a secured card that reports to the three major credit bureaus, then let time work its magic.
2. You don’t need a credit score to apply.
Secured cards are invaluable for new cardholders, as you don’t need a credit history to apply for one. Because you put down a deposit to secure these cards, you’re considered less risky to a provider that can simply take your deposit if you fail to make payments. And you can apply with a good chance of getting approved.
The best credit card for college students might be a secured credit card because these cards tend to be easier to qualify for. Secured credit cards for students with no credit or poor credit are perfect for building up good credit.
Secured credit cards offer teenagers under 18 years old another benefit when it comes to applying. To get a secured credit card under the minimum age of 18, you’ll need a cosigner, who puts their name behind your spending habits and promises to be responsible for you. Cosigning a student’s secured credit card provides another level of protection and makes it easier to qualify. Since secured credit cards require a deposit, this protects your cosigner and your credit card company — any debts come out of your deposit, not your cosigner’s pocket.
3. You can practice using credit responsibly.
When you have a high credit limit, it’s tempting to use your card for large purchases and put repayment on the back burner. But this is an easy way to spiral into huge debt that can take years to erase. Secured credit cards help college students learn good spending habits.
With a secured card, your credit limit is the amount of money you deposit up front. This might sound like a disadvantage, but it can actually benefit those who are new to credit cards. If you put down a $200 deposit, you effectively ensure that you can’t spend more than that. You’ll need to consistently pay off what you owe first before spending more with your card.
Operating within a small credit limit can give you lots of practice with credit. You’ll come to view your card as a tool to easily make small purchases, instead of a gold mine of untapped riches. Better yet, you can correct bad spending habits — such as spending too close to your credit limit — before you’re eligible to open new credit cards in a few years.
4. You can graduate to an unsecured credit card.
An attractive benefit of secured cards is that some allow you to graduate to an unsecured card. Unsecured cards are what we typically think of as “normal” credit cards, and they don’t require security deposits.
If you can’t get an unsecured card at first, consider starting with a secured card that gives back as you prove you have responsible borrowing habits. For example, the Secured Mastercard from Capital One gives you a higher credit line after you pay on time for the first five months. And with the Discover it Secured Credit Card, you may qualify to have your deposit returned after seven months.
5. Whet your appetite for an unsecured card.
Secured credit cards can be helpful, but an unsecured card can typically offer greater benefits at lower fees. All of the best cards — cash back, travel, balance transfer, 0% APR and more — are unsecured. And the best perks are reserved for those with good credit scores. The same goes for secured credit cards — the best secured credit cards for students looking for perks might require a better credit score.
No, your secured credit card won’t offer many rewards. But in the meantime, you can start thinking about what your perfect card would look like. This will inform your research when you start looking for an unsecured card down the line.
Who knows? In a few years, you may be able to open a card that comes with travel benefits, spending bonuses and other perks to reward your spending habits.