I can’t count the number of times I’ve been offered a credit card on campus. At the Davis Building entrance, representatives offer me a free T-shirt—as long as I apply for a card. It’s often nearly impossible to walk through the Student Centre without someone offering me a free water bottle in exchange for my signature on an application form. But are credit cards really good for students?
Articles published by the Toronto Star and the Globe and Mail present the view that students can benefit from getting a credit card, so long as they use it responsibly.
In an August 24 Toronto Star article on the benefits of a credit card for students, Robb Engen wrote that students, “probably should [get a credit card]. Credit cards are practical and useful and managing them is a fact of life. So the sooner young adults learn to use one responsibly and begin building a credit history, the better.”
The average student is about $24,000 in debt, which includes government loans such as OSAP as well as credit card and banking debt. While OSAP is unavoidable for many students, it’s easier to put out of mind since no interest is added before graduation.
According to a Globe and Mail article by Claire Neary published in June, the number of students with unpaid credit card debt remains low. The average debt for students with unpaid balances rests at about $3,500—a small proportion of overall student debt.
Eighty-nine percent of students use credit cards regularly, and 82% of these students reported that they pay off their balances in full each month.
“I’m late [on my payments] sometimes because I just forget to go to the bank. I wouldn’t say I’m out of control,” says Priya Chopra, a fourth-year CCIT student. “[Having a credit card] makes student life easier.”
“I have one, but I barely use it. I use debit for most things,” says first-year student Jacob Cochran.
For many, credit cards make large payments easier to handle. “When buying books, I don’t have to wait for money to be in my account. I can just use my Visa and pay later when I have more money,” says Chopra.
However, there are some horror stories. “I only had a few thousand to pay off. [My husband] Jeremy had about $20,000. It took us six to seven years to pay it off,” says alumnus Chris Brooks. “We graduated without money and married young. I’d say the debt has been with us most of our lives.”
Credit cards can easily tempt students into overspending and lead to lifelong debt. But there’s a silver lining to student credit card use—improved credit scores.
Credit scores are determined through a mathematical formula that analyzes your financial and debt history. The formula yields a three-digit number between 300 and 900; the higher the number, the better your credit score. Higher credit scores make it easier to be approved for such things as car leases, mortgages, and large loans in the future.
Many students are unaware of the importance of credit scores. Without regular credit card use, students can’t begin to build a strong credit score. Their score improves every time a loan is paid off.
Chopra said about her credit score, “I don’t even know what that is.”
Neary writes that she got in contact with Nadim Abdo, the vice-president of client solutions at Equifax Canada, for a rundown on why credit scores are so important.
“Mr. Abdo also told me that credit scores are only one of several tools that credit agencies use to determine your credit-worthiness,” she writes. “‘Your score is a check on your character,’ he said. ‘In this day and age, when we often can’t meet face-to-face, [you determine someone’s character] through looking at their past history and see how they’ve paid back debt.’ ”
Student credit card debt is a tightrope. Irresponsible spending can push students into overwhelming debt, but monitored and responsible spending can allow students to live more comfortable lives in the future.
If you’re a student considering applying for a credit card, many financial sites, such as moneysense.ca, rate the best and worst cards for students. As a general rule, you should look for cards with no annual fee and a low interest rate. You should also look for a card with perks that you will use (like a Scene card or RBC’s Shoppers Optimum MasterCard).
Engen shares this opinion. “The best deal for a student is a card that has no annual fee and rewards each purchase with cash back or discounts on things they need,” he writes.
“The rewards should be useful, though: earning points toward a new car or a fabulous holiday might sound good, but chances of spending enough to earn the points are out of reach for most students.”
As long as you spend responsibly and pay off your monthly balances, any card will improve your credit score.