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Credit card for college student to build credit, why not?

I read several posts/questions of college students looking for the best credit card. I don’t get why a lot of people suggest not to get Credit Cards. I understand that they are risky,etc. but this is the only way to build credit in the US. I am a college student myself (with no credit card yet) and everywhere you go, they want to check your credit. How can they check your credit if you don’t have a credit card? I’ve had a bank account and an ATM card for the past 3 years, and as far as I know I have no credit. I am an international student so I might be wrong….

Answer this question: Would you pay $100 for a pair of shoes that only cost $75? No, right? Well, that is what you are doing when you use a credit card. Every time you purchase something on credit, they charge you an interest rate, UNLESS you pay off the entire balance of the credit card within 30 days of the purchase.

Most people cannot do this, and as a student, you probably will not be able to do it either. Missing one payment will lower your credit score, and that takes seven years to amend. Even if you miss the payment in, say, April, and make the double payment in June, for the next seven years, everyone will be able to see that you missed a payment. Yes, they will also be able to see that you made it up, but the missed payment will remain and will affect your future credit prospects.

While Credit Cards are a good way to gain credit, they are extremely risky, especially at a time when you are an extreme credit risk because you are a student. This, coupled with the fact that you don’t yet have credit will give you a very high interest rate, which means you will be paying upwards of 25% MORE for what you want or need than if you just paid cash. AND that 25% is towards the total balance or your card, not just on your purchase.

In other words, you put $50 on your card in March, $50 in April, $50 in May. You make minimum payments each month of, say, $10. That means that your March purchase of $50, + 25% interest is $62.50, your April balance becomes $128.12 and your May balance $210.15. Notice that your original $150 balance is now $60+ higher than it was.

If you are hell bent on getting a credit card to gain credit, I would strongly suggest a secured credit card. There are several banks that offer such cards. They work exactly like regular Credit Cards do, AND they are secured against your own savings account. In other words, you put $500 in a savings account, your credit limit is $500. They will send you bills every month, you pay the bill, and you gain credit. The only person who knows it’s a secured card is you and the bank. No retail outlets will know, and even if they did, they wouldn’t care. None come amiss so money come withal, as the old saying goes.

Furthermore if you do get into trouble and are unable to make the payments, you can close the credit card out with your savings account and it will be totally paid off. You can also raise the limit of your card by putting more into the savings account, so if you start with, say, $200, you can add $100 every month until you get the balance you want, and you are still secured against the savings account, which keeps you from getting into trouble.

In the end, cash may not build credit, but you cannot miscount cash, you cannot bounce cash, you cannot overspend cash, and you cannot be in debt when all you spend is what’s in your pocket.

Good luck to you.

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