College Students: Reasons Not to Shred that Credit Card
When you’re in college, a credit card may seem like a bad idea. You’re probably on a limited income, and when a credit card is used incorrectly, you can easily rack up a large amount of debt. The Credit CARD Act of 2009 added more requirements for college students under 21 to get a credit card to help prevent this issue.
With the potential for credit card debt and the fact that credit cards are now more difficult to get for young college students, many stick to their debit cards. But a credit card can be a valuable financial tool, and if you have one, there are a few key reasons you shouldn’t shred it.
Credit Cards Are the Best Way to Build Your Credit Score
By far the most important reason that you should keep your credit card is because it’s the best way to build your credit score. Your credit score will be very important later on in life. Although there are other ways to build credit, using a credit card and paying off the balance are the fastest.
The credit reporting bureaus take several factors into account when determining your credit score.
Most important is your payment history, which means paying your bills on time. If you put at least one purchase on a credit card per month and pay it off by the due date, you’re building a strong payment history which will increase your score.
Credit utilization is the second-most important factor in your credit score. For this, all you need to do is keep the amount of your available credit that you use under 30 percent.
Another factor is how long you’ve had your credit accounts. By keeping your card open instead of shredding it, you’ll have a longer average account history.
You Can Earn Rewards or Cashback on All Your Spending
Even though people can be wary about using credit cards, if you use them responsibly, they allow you to make money back on everything you spend.
Many credit cards offer either reward points or cashback on all your purchases. On any decent card, the minimum return will be either 1 point per dollar spent or 1-percent cashback per dollar spent. Cashback is undoubtedly the simplest option, but reward points can be put towards valuable travel rewards.
Whichever option you choose, you’ll get a return on your spending, and credit cards are the only way to do this. If you pay with cash or a debit card, you obviously won’t get any percentage back on what you spend.
That’s why if you know you’ll be able to pay your credit card bill in full every month, it’s actually a good idea to put all your spending on your card to maximize your reward points or cashback. Pay the bill in full and you’ll never need to pay any interest, either.
Credit Cards Can Help During an Emergency
Credit cards aren’t the ideal option for emergency expenses. That would be an emergency fund, which is why it’s recommended that you have three to six months’ worth of expenses saved. Of course, when you’re a college student, it’s hard to save this much money, but it’s still good to have some money saved up in case you need to get your car fixed or you have another emergency that requires immediate payment.
A credit card works well as a last resort in these emergency situations, though. If you don’t have the money saved up to cover an expense, a credit card at least gives you a way to pay it off and handle the issue now. You can then come up with a plan to pay off your credit card, or see if you can borrow money from family to do so.
Credit cards may get a bad rap sometimes, but don’t let that convince you to shred yours. There’s nothing inherently bad about credit cards. Issues only arise if the cardholder doesn’t follow responsible spending habits. Focus on controlling your spending and setting a budget and you won’t have any problems with your credit card.