Tips on building a credit score
Paying your full balance each month shows you’re using credit correctly—you’re budgeting—your spending doesn’t exceed your earnings. Young consumers are still getting into trouble during this life phase, said Thuy Lam, a certified financial planner at Objective Financial Partners.
“I see so many students—even when I was a student, my own friends—get into $20,000, $30,000, and $40,000 of credit card debt during school years because they don’t realize that, ‘Oh, it’s not free money,’” she said.
Get a low limit and resist any offers to increase it until you’ve established good spending habits, Lam added. For students with minimal cash flow—not working part-time during school, little savings—this credit card barely needs to be used at all.
You can drop one recurring bill on your card, like a phone plan. A small amount is easy to pay completely and having it show up every month establishes a good history of timely payments.
“I think the key is keeping in mind: what is the purpose of a credit card?” Lam said. “And for students, that’s No. 1: facilitating small bill payments and, No. 2: building and establishing credit.
“The purpose of a credit card is not so we can spend freely, it’s because we live in a credit system,” she added. “It’s just important to establish credit and keep it healthy.”
Are rewards credit cards good for students?
As for rewards, Taub pointed out that some students may have support from their parents, savings, RESPs, or scholarships—and with those resources, they might find value in travel, concerts or other lifestyle perks.
But she also noted most students are struggling financially; a recent TD survey found 65% of students said they were financially unstable. There may be more value in a simple cash-back card.