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The Ultimate Guide to Choosing Your First Credit Card as a College Student and Young Adult

Updated on

  • October 14, 2023

Introduction

Applying for your first credit card in your 20s can be both exciting and nerve-wracking. I remember applying for my second credit card at J.P. Morgan Chase Bank in Chicago. I walked in and told them that I wanted to apply for a Chase Credit Card. The worker had me fill out some paperwork and asked me some basic personal and employment questions. I then got my credit card in the mail in a few weeks! I always knew I wanted a credit card not for spending luxuriously but to build my credit score and history from an early age for the future.
As a college student in my 20s, I was overwhelmed with thousands of credit card options and financial terms that I had no clue about, but I always find it exciting to learn more about them. So here are the things I’ve learned throughout the process: in this guide, I will help you navigate the world of credit cards, choose the right one for your needs, and walk you through the essential factors to consider when applying for your first credit card as a college student. Let’s dive in!

Table of Contents

Understand the Basics of Credit Card

What is a credit card?

A credit card is a financial tool that allows you to borrow money from a bank or financial institution to make purchases. However, unlike a debit card, which deducts funds directly from your bank account, a credit card allows you to borrow money up to a certain credit limit.

How does it work?

The credit limit will go up after you’ve shown a good and consistent history of paying off your credit card bill on time and/or when your total annual income increases. Thus, It’s crucial to pay off the borrowed amount within the designated grace period to avoid accruing interest charges. A rule of thumb is to not spend more than 30% of your credit card and set up an automatic payment. Your starting credit limit is going to be small – I started with a $200 credit limit with my secured credit card because banks want to make sure you know how to spend responsibly before giving you a higher credit limit.
Remember that you’re using a credit card as a tool to build a positive credit history for renting an apartment, obtaining a car loan, or buying your future home and not your short-term luxury wants. Just because you’re given a $5,000 credit limit a month, does not mean that you should spend all of them. You should still only spend it on things you need. Use your credit card as your financial buddy to gain favorable terms like cashback or rewards and not like your enemy to accrued interest from unpaid balances.

How does it work?

You need to be at least 18, a U.S. Social Security number, and can provide proof of independent income — from a part-time or full-time job. The law is enforced after the Credit Card Act of 2009 which is a lending act “to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.”

Benefits of Having a Credit Card in Your 20s

Building a positive credit history for future financial endeavors

Acquiring a credit card during your college years can bring numerous advantages for your future older self. Firstly, it provides an opportunity to establish a positive credit history from an early age.
Lenders and financial institutions consider your credit history when determining your eligibility for loans, mortgages, new credit cards, or other credit-related products in the future. Think about your credit score like a history of your on-time payments to borrowed money from banks over the course of your credit cards. According to myFICO, “FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).”
Generally speaking, a higher credit score means you’re most likely to be financially responsible for your ability to manage your finances without any late payments. Lenders reward candidates with good credit scores with the best home loan rates, lower mortgage interest rates, longer terms, and higher chances of approval because they know they will get their money back. In contrast, the lower your credit score, the higher your interest rate because banks are trying to protect themselves in the case of debt and missing payments. A higher interest rate could cost you hundreds of dollars on your monthly payment and tens of thousands over the lifetime of the loan.
Sometimes your potential employers could also run a credit report check as part of the background check before hiring you or your future landlord will use your credit score to decide if they want to rent you an apartment.

Earning rewards and cashback on your purchases

My favorite thing about applying for a credit card is the reward! Many credit cards offer rewards, such as welcome or sign-up bonuses (when you meet the spending requirements within the specified time frame), and cashback programs from 1% to 5% or more, enabling you to earn benefits and save money on your purchases. Think of getting cashback like getting discounts on your everyday purchases like groceries, gas, restaurants, or even the new Xbox you’re thinking about. It’s like always paying for items at a discount. It’s crazy to think about it! I currently have a Citi Double Cash® Credit Card, which means I’m always paying for things with 2% off each time I use the card.
Other than cashback credit cards, they are also other types of credit cards like travel/credit cards and company-specific cards. Travel/Miles Credit Cards allow you to earn rewards miles or points on qualifying purchases and redeem them for things like airline upgrades, vacation rentals, hotels, rental cars, cruises, and more. Company-Specific Cards: These credit cards allow you to rack up rewards at specific companies from hotels and airlines to grocery stores and makeup stores. Each credit card has different benefits and rewards. For example, I have an Amazon Prime Visa Card with my Prime membership that I earn an unlimited 5% back on Amazon, Whole Foods Market and Chase Travel purchases and 2% back on gas stations, restaurants, local transits/rideshares purchases, and 1% back on all the other purchases.
As you can see, they are many types of credit cards you can apply to. Each credit card has different approval requirements. For credit cards with great benefits, you want to make sure you have a good stable credit score before you apply for them because you want to avoid banks pulling your credit reports too often, as it would hurt your credit score slightly. Each time you apply for a new credit card, banks run a credit report check before approval. The higher your credit score, the higher your chance of getting approved for new credit cards. I would recommend applying for a secure credit card and upgrading them to a regular credit card after you’ve established a baseline of your credit score. I will explain more about secured credit cards below.

Establishing responsible financial habits through bank mobile apps

Lastly, responsibly managing a credit card can help you develop good financial habits, such as budgeting, tracking expenses, and making timely payments. Banks make it easier for you to do all that by providing you with a free mobile app that can be accessed on your phone 24/7.
“With great power comes great responsibility” quote by Spider-Man. I think applying for and getting your first credit card is one of the effective ways to establish good financial habits as you’re adulting because you’re taking control of your short-term finances, understanding your expenses/income, and learning new financial habits to prepare yourself when you graduate from college. As I’ve stressed earlier, you want to make sure to always pay off your credit card monthly on time. Otherwise, let’s make sure to set a custom alert on the bank mobile app to notify you when you’ve spent 30% of your credit limit. I’ve all my payment due dates set as either the 15th or the end of the month to align with when I receive my paycheck, so I’m always paying off my credit card bills.
During this journey, I highly encourage you to check your bank statements and become obsessed with the movement of your money to become conscious of your financial health – how much you make monthly, how much you are spending monthly (fixed and variable), and how much you need to budget each month. Write down all your fixed expenses such as rent, phone bill, or car payments, and variable expenses such as groceries, eat-outs or entertainment. Then, take a look at your take-home income and see how much you’ve left after fixed expenses. If your total expenses are more than your income, take a look at your variable expenses and ask yourself if they are necessities or just simply wants. If not, you can also look for ways to increase your income to afford the lifestyle you want.

Factors to Consider When Choosing Your First Credit Card:

  1. Annual fees: Finding cards with no or low annual fees.
  2. Interest rates: Understanding APR and seeking cards with favorable rates.
  3. Rewards programs: Exploring different reward options based on your spending habits.
  4. Introductory offers: Taking advantage of sign-up bonuses and promotional rates.
Before applying for a credit card, several crucial factors should be taken into account. Begin by researching the annual fees associated with different credit cards. As a college student, finding a card with no or low annual fees can help you avoid unnecessary expenses.
Another significant factor is the interest rate, expressed as the Annual Percentage Rate (APR). A lower APR means less interest charged on balances carried over from month to month. It’s good to know about this, but rule #1 is always to pay off your statement balance, so you’re not accruing interest on unpaid balances. As favorable as the APR may be, you’re still paying extra money on top of the unpaid balances. Unless it’s absolutely necessary or there’s an emergency, I would avoid not paying your statement balance at all costs.
One of the best things you could do after you’ve established your credit score is to explore the rewards programs available for different credit cards, as some cards offer cash back, travel rewards, or points that can be redeemed for various benefits. Reward yourself with some credit cards that fit your expenses to maximize savings! Lastly, consider any introductory offers, such as sign-up bonuses or promotional rates, that may provide additional value. I got $300 free money from Chase Bank in my Junior year of college because they were running a promotion on a new credit card if you spend at least $1.5k for the next 3 months after applying. I knew I was going to be spending that amount because of some college expenses. In the end, Chase Bank actually paid for a portion of my college. Thanks, Chase Bank!

Credit Card Options for College Students:

  1. Secured credit cards: Building credit with a secured card.
  2. Student credit cards: Tailored options designed specifically for students.
  3. Cosigned credit cards: Using a cosigner to access higher credit limits.
  4. Become an authorized user: Piggyback on established credit score user
As a college student, there are specific credit card options designed to cater to your needs. Secured credit cards are an excellent starting point for building credit not only for college students but also people who have poor credit scores and history. With a secured card, you provide a cash deposit as collateral, which becomes your credit limit. That’s the reason why it’s called a secured credit card because the credit is secured by your cash deposit in case you missed your payment. The minimum deposits start at around $200 and if you later convert the account to an unsecured credit card or close the account, you can get your deposit back. Instead of closing a credit card account, I would suggest converting it to an unsecured credit card or a regular credit card with all the perks/rewards. That’s when your previous research on credit cards comes in handy. If you have an idea of what credit card you want, check out if they have a secured credit card.
I always wanted the no-annual-fee 5% cashback Discover it® Cash Back Credit Card but Im also aware that it’ll be hard for me to apply for that without any credit score. Therefore, I applied for The Discover it® Secured Credit Card as my very first credit card in college to build my credit score first and call customer service to see if I’m qualified to convert it into a cashback credit card after six months. The duration it takes to convert a secured credit card to a regular credit card varies depending on the card issuer. I was able to convert it in six months, but it could take up to 18 months depending on your credit usage, payment history, and other reasons.
Student credit cards are specifically tailored for students and often come with lower credit limits. You don’t need a deposit, but you do need to show that you’re either a full-time or part-time student and might need a co-signer to open the account. Unlike a secured credit card, a student credit card can come with perks like cash back and travel miles. For example, Chase offers 1.5% cash back on all purchases.
Another option is cosigned credit cards, where a parent or guardian cosigns the credit card application, providing access to higher credit limits, potentially better terms, and bigger chances of approval. A co-signer is someone with good credit and income who guarantees that they will be responsible for your debt if you don’t pay your credit card balance. However, not many card issuers allow co-signer anymore.
Lastly, you can ask your parents or someone you’re very close to to add you as an authorized user to piggyback on their credit card payment history and gain a boost on your credit score. With this card, you’ll have a credit card with your name on it, access to the primary cardholder’s line of credit, and not be responsible for the debt. However, if the primary cardholder failed to make on-time payments, your credit score will be negatively impacted. Personally, if you can find someone you trust and they trust you, I would strongly encourage it to jumpstart your credit score. I actually asked my partner to add me as an authorized user because my partner has a good credit score and payment history except I asked him to lock the credit card in a security safe lock box, so I would never use it. Even today, I still have not seen the card. I’ve definitely experienced the benefits on my credit score though!

Tips for Responsible Credit Card Usage:

  1. Creating a budget and sticking to it.
  2. Paying your bills on time and in full.
  3. Monitoring your credit score regularly.
  4. Avoiding unnecessary debt and overspending.
Using a credit card responsibly is crucial for maintaining a healthy financial life. Start by creating a budget that outlines your monthly income and expenses, ensuring you can comfortably manage your credit card payments. Always pay your credit card bills on time and in full to avoid late fees and interest charges. Late payments can also negatively impact your credit score. Speaking of which, monitor your credit score regularly to track your progress and identify any potential errors or discrepancies. Lastly, resist the temptation to overspend and accumulate unnecessary debt. Only use your credit card for purchases you can afford to pay off within the grace period.

The Application Process:

  1. Gathering required documents and information.
  2. Steps to apply for a credit card as a college student.
  3. What to expect after submitting your application.
When you’re ready to apply for a credit card, gather the necessary documents and information beforehand. This typically includes personal identification documents (such as your driver’s license or passport), proof of income (if applicable), and your social security number. Research different credit card options and select the one that best aligns with your needs and financial goals. Once you’ve chosen a card, visit the issuer’s website or fill out an application in person. After submitting your application, the issuer will
By following this comprehensive guide, you are now equipped with the knowledge and tools to confidently choose and apply for your first credit card as a college student. Remember, responsible credit card usage is key to building a strong financial future. Use your credit card wisely, pay your bills on time, and enjoy the benefits that come with being a responsible borrower. With a solid credit history, you’ll be well on your way to achieving your financial goals. Best of luck on your credit card journey!
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