A College Student's Guide to Credit

Editor’s note: This is a guest post by Chris Faires

COLLEGE is a time filled with a new sense of freedom and new experiences. Students learn a lot about living on their own, being responsible students, and managing their time. One of the most important skills college students learn is how to handle their finances. For most students, college is the first time away from parents telling them what they can and cannot buy. This previously unknown level of independence can be too much for some college students to handle. Credit card companies and loan sharks know this, and they target college students as their prime customers. Before you get in over your head, make sure you know the basics of credit and how to use it responsibly.

What is Credit?

Credit can be thought of as your “financial trustworthiness.” The more likely you are to repay the money you borrow, the better credit you will have. Your credit is carefully kept track of by three main credit bureaus: TransUnion, Equifax, and Experian. These bureaus receive information from the companies lending you money about how well you pay back the money you borrow. This information, compiled into your credit report, determines your credit score. Your credit score is a number that companies use when determining whether or not to loan you money. This can become important when applying for auto loans, mortgages, and other large loans.

Lenders make money by charging interest on the money you borrow. This is typically shown as the Annual Percentage Rate (APR). Companies also make money through fees they charge when you make a late payment, take out a cash advance, or go over your credit limit.

Starting Off on the Right Foot

Having good credit is like bodybuilding. You can’t become strong by simply doing nothing. You must be proactive in building your credit score. As a college student, there are a number of things you should do to build your credit. First, open a checking account and get a debit card. Become comfortable with using a card and spending a limited amount of money. Learn about what incurs fees, like overdrawing your account and using ATMs other than your bank’s.

When you feel responsible enough, apply for a credit card. When choosing a card, consider any annual fees, the APR, and potential late fees. Many companies will offer promotions, like 0% interest for the first 12 months. These are nice, but read the fine print and make sure you know when the promotional period ends.

Control the spending on your credit card. It is important to use your card to improve your credit, but use it for small purchases and pay off the balance each month. For example, use your credit card to pay a monthly gym membership.Students often need financial aid to pay for school. This is commonly done through student loans. Federal loans, such as Stafford and Perkins loans, are the best option. The government pays all the interest while you’re in school, and they offer a grace period, which allows you to wait up to 6 months after graduating to repay your loans. Private loans are also an option, but they are much riskier than government loans.


The reason credit card companies target college students is not because they think they are responsible borrowers. They do so because they understand how easily college kids can abuse their credit privileges and put themselves into thousands of dollars of debt, which translates into more money for the creditors. Set boundaries for yourself when it comes to your credit card use. A rule of thumb is to never borrow more than 20% of your annual after-tax income, and never let your monthly payment exceed 10% of your monthly net income. Also, stay away from cash advances, which should only be a last resort. The main point is to exercise restraint. With great power comes great responsibility.Be careful and informed in the choices you make about your credit. How you manage your credit in college can set you on a path for success, but it can also cripple you for years to come.

About the Author

Chris Faires is a freelance writer for MyCollegesandCareers.com. My Colleges and Careers helps people determine if an online education is right for them and helps them understand which online courses and online schools they can choose from to reach their goals.

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