Why college students don't need a credit card
College students aware of the financial pitfalls that await those with bad credit scores may feel the need to get a credit card and start swiping to start building their score. However, this isn't necessary, and could actually end up a financially detrimental option.
The CARD Act, passed in 2009, limits credit card companies' abilities to lure college students, and for good reason, according to a Forbes interview with Confessions of a Credit Junkie author Beverly Harzog. The act prevents credit card companies from offering cards to young adults under the age of 21, unless they show sufficient income. In addition, companies can no longer send pre-approved offers to these young adults without their permission.
The act was passed to protect students from the financial damage that unfettered credit card use could result in. Having no basis for a credit score is bad enough, but plummeting your score through piles of debt is probably worse. Chances are if you are a student, college loans will be all too real, way too soon. Credit card debt on top of that wouldn't be good.
What to do instead of getting a credit card
Frank Holmes, chief executive and chief investment officer of U.S. Global Investors Inc., suggested that college students avoid credit cards. He suggested that college students begin saving and investing early, rather than potentially rack up debt with a credit card.
Saving early is a good way to establish a foundation of good financial habits for adulthood, Holmes suggested. In addition, in regard to investments, young people have a higher risk tolerance than those more advanced in age, which allows for more aggressive investment.
In order to save, take advantage of discounts. There are plenty out there for college students, and all you will need is a student ID.
Harzog recommended that college students begin their university career with a debit card. Using a debit card directly linked to your account will help teach money management skills that you will need later in life. Specifically, debit cards are a great way to teach budgeting with a card, since plastic comes inherent with an "emotional disconnect," she wrote.
In the meantime, there are other ways to build credit than through a credit card. For example, a PRBC alternative credit score will likely paint a much more positive portrait of your financial habits than traditional scores, if you do not have a credit card. Alternative credit scores like PRBC take into account a borrower's payment habits that the three major credit bureaus don't consider.
If you don't have a credit card, but pay your bills on time - such as utilities, subscriptions, rent and more - than alternative credit scores will help you appear more like the financially responsible consumer that you are. PRBC supports thousands of banks, credit card companies, utility providers and insurance firms. With an alternative credit score it is possible to take almost anything into account in order to establish a credit score worthy of a loan.