Yesterday afternoon, a friend asked me if I thought he should open up a credit card. Unsurprisingly, I get asked this question all too much. At some point every college student has to decide if a credit card is right for their financial life. As a college student myself, I happen to be a big fan of credit cards for a wide variety of reasons. They’re a great vehicle for learning financial responsibility and developing good spending habits. So instead of giving that friend a yes or no answer to his question, here are the five reasons I gave him as to why a credit card is smart. Ultimately, the decision is left in his hands. Choose wisely, Josh!
5 benefits to having a credit card in college:
Build credit early
4 years in college is plenty of time to build credit history, however, it’s crucial to maintain a positive credit file. Just having a credit card simply isn’t enough for landlords, loans, mortgages and apartment rentals to approve your file. Showing positive credit history over time by paying balances off regularly can establish you as a responsible applicant. Once graduated and in the real world, it can be virtually impossible to open a line of credit for a new car or house or even get approved for an apartment without a credit history or co-signer. Hi mom! 👋
Learn to spend smart and budget right
Once you have a line of credit, it’s all too easy to spend recklessly and bite off more than you can chew. Treat your credit card like cash, and by tracking your spending and monitoring your outstanding debt you can easily develop great financial habits. Birch is actually really good at doing this for you and will show you exactly where you spend and what you spend on. Learning these habits early can make you much better at budgeting money in the future.
Prepare for the unexpected
College students don’t always have access to cash when an accident occurs. Medical emergencies, car troubles or other unexpected bills can debilitate a student's reserves. Having access to a credit line can help prepare you for when accidents occur.
Have the urge to travel?
Traveling to the game next weekend or to Miami for Spring Break? You probably need to book a hotel and rent a rental car. Most, if not all, hotels and car rentals will require a form of pre authorization. Although you’re able to put pre-authorizations on debit cards, your funds will get tied up and sometimes won’t become liquid for 10-14 days after the holds are released. In addition to that, credit cards offer many different travel benefits that debit cards don’t, from trip insurance to concierge service.
Earn rewards on your spending
Listen, I know what you’re thinking. “I don’t spend enough to earn enough rewards.” I thought the same thing. But even $50-$100 a year is more than you’re currently getting on your debit cards. Let’s say every month you spend $125 on groceries, $100 on going out and $75 on dining, you can easily earn $108 each year in cash back rewards with no effort! Include your car insurance, impulsive shopping and Amazon purchases, your spending can easily earn you $150-$200 a year, enough to pay for that Spring Break flight.
Birch can show you which cards make sense for your spending and earn you the most rewards. And if you want to cash in on more lucrative rewards with more premium cards in the future, it’s best to start now.