This article is part of the Students and Credit Cards series.
When it comes to college students getting credit cards, there are different schools of thought; some experts recommend students avoid credit altogether, while others emphasize things like low interest rates/fees and reward programs.
We reject both sets of advice. While college students should not be adding to their debt load with credit cards, it’s crucial that young adults establish good credit and bill-paying habits early on. The sooner they are responsibly using credit, the better their credit score will be when they need it most.
That means credit is a necessity for students, but we think looking for a card with the best rate or good “bonus points” programs is the wrong move for a new consumer just starting out.
We think the best thing a new credit user can do is get a small credit account with a low limit that is easy to control. It needs to be a card the user will pay off every month to avoid interest and fees, and something the cardholder will actually use every month, so there is activity on the account (this is essential for helping to build a good credit rating).
The type of card that best meets these criteria is a gas card. This credit card is used at least every month, and is designed for a specific, controllable expense. Instead of paying for gas with cash, use the card and pay off the balance before the grace period to avoid extra charges.
Another option is a store card that is tied to a specific retailer; these cards usually carry lower limits, and if they can only be used in one location, it makes it less likely that debt will spiral out of control. The idea here is to “give yourself less rope” by using a card with limits as to where and how much it can be used.
After graduation (and hopefully the start of a new career) one can start thinking about the card with the best rates and rewards. If our advice was followed, a healthy credit history will have been established without building up an insurmountable pile of debt. That leaves the new credit-seeking consumer in a position to really take advantage of the best credit cards on the market.