Build Credit as a Student: Get a Charge Card

A student charge card can help a young person just starting out establish a good credit rating, or, ruin their credit. Properly used, a credit card is a great way to establish a good credit history and learn important financial habits that will serve throughout life and gain financial flexibility to help manage your cash flow. 

How Your Credit Score Works

Lenders share loan information with the three credit reporting bureaus: Experian, Equifax and TransUnion. These bureaus keep a record of what you borrow, how often you borrow, on-time and late payments and any legal actions such as defaults, foreclosures or bankruptcies. Based on your credit history, the Fair Isaac Corp., commonly called FICO, generates a FICO credit score for you between 300 and 850. About 720 is the median, with 620 or below classifying you as a poor credit risk.

Charge Cards and Credit Cards

A credit card is an ongoing line of credit. The card issuer is lending money to you under certain terms every time you use the card. You are liable each month for a minimum monthly payment and can charge up to the credit limit of the card. A charge card can also be considered money loaned to you by the card issuer, however you must pay it back in full by the end of the month.

Charge cards usually have a monthly fee and are harder to get because of the full monthly payback requirement. Charge cards are relatively easy to get put pose more danger to you as you can run up more charges and get in financial deep water.

Getting a Card

Once you turn 18 and are a student, the problem is not getting a student charge card. You will be offered the chance to sign up for a card and will be offered t-shirts, cups and caps and other special promotions as an incentive. The challenge is to choose the right card.

You should be able to get a low- or no-fee card. Competition is stiff and the companies vie for your business. If you have a bank account and have maintained a good relationship with the bank and are not delinquent on any school loans or payments, you should qualify for a fairly low-limit student charge card, such as about a $500 limit. The low limit can be a benefit to you by keeping from getting in too far over your head.

Building Good Credit

The way to build a good credit history with your student charge card is simple: Pay at least the minimum payment on time every month. You can help yourself even more and begin to develop sound financial habits by paying off your balance in full every month. This will not only help your credit score, it will help your pocket book as there typically is no interest expense on your student charge card if you pay the balance off in full monthly. This can be a substantial savings.

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