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Why Does a Student Need a Credit Card?

Why Does a Student Need a Credit Card?

This can be a touchy subject with parents, as giving their child a credit card too early can have definite benefits & downsides. Allowing a student a credit card can offer several potential benefits & freedoms, but it's important to approach credit card use responsibly and understand the potential risks. CreditSoup breaks it out for you in this article, weighing in on those pros & cons.

7 Reasons Why a Student Should Have a Credit Card

    1. Builds Credit History: Using a credit card responsibly and making on-time payments can help them start building a positive credit history. A good credit history is important for various financial aspects later in life, such as renting an apartment, getting a car loan, or applying for other types of credit. Educate your children on why this is important.

    2. Emergency Funds: Having a credit card can provide a safety net in case of emergencies or unexpected expenses. It can be a valuable tool to cover urgent expenses when you don't have cash readily available.

    3. Convenience: Credit cards offer a convenient way to make purchases both in-person and online. They eliminate the need to carry cash and provide a secure way to transact. Be sure to stress the importance of only charging what they can pay off quickly.

    4. Online Purchases: Many online transactions require a credit card. If they're shopping online for school supplies or other essentials, a credit card can make the process smoother. Make sure they know to only purchase what they could afford to pay off with cash in hand.

    5. Rewards and Benefits: Some credit cards offer rewards and benefits, such as cash back or discounts on purchases. If they can manage their spending and pay off their balance in full each month, they could earn rewards on their purchases.

    6. Financial Responsibility: Having a credit card early on provides an opportunity to learn about responsible money management, budgeting, and keeping track of expenses. It's a chance to develop financial literacy skills that will serve them well in the long run.

    7. Travel and Study Abroad: If your student plans to travel or study abroad, having a credit card can be useful for booking flights, accommodations, and other expenses that might arise while they're away. Be sure to have a plan set in place to pay off such charges.

Downfalls To Having A Card Too Early

Allowing your student to have a card too early may be the ultimate downfall. It's important to keep in mind that credit cards come with potential risks. They may fall into bad spending habits too early and incur a handful of setbacks such as:

  • Debt Accumulation. If they don't manage their credit card responsibly, they could accumulate debt that becomes difficult to pay off. High interest rates on unpaid balances can make debt grow quickly.

  • Financial Impulse. Credit cards can make it easy to overspend and succumb to impulse purchases. It's crucial to set a budget and stick to it.

  • Interest Charges. Carrying a balance on their credit card and not paying it off in full each month can result in interest charges, which can be financially burdensome over time.

  • Credit Score Impact. Mismanaging their credit card can negatively impact their credit score, making it harder to access favorable loan terms in the future.

Be Cautious

Before getting a credit card, carefully consider their financial situation, spending habits, and ability to manage credit responsibly. If you do decide to get them a credit card, start with a low credit limit, read and understand the terms and conditions, and commit to paying off their balance in full each month to avoid unnecessary fees and interest charges.

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