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I frequently get emails from readers who are college students and don’t have credit cards yet, and want to know how they can take advantage of the great cards I talk about (including the sign-up bonuses, the bonus points on everyday spend, and the perks). I was in the same position not too many years ago, as I graduated from college in 2011. So I figured I’d provide some tips for college students wanting to apply for credit cards.
There’s no denying it can be extremely frustrating to get started applying for credit cards. Banks want to issue cards to people they know are credit-worthy, but how can you prove you’re credit-worthy when banks won’t give you a chance?
While it can be a bit of a process, there is a method to establishing your credit worthiness and maintaining a great credit score, and it’s probably not as hard as you think.
I figured I’d provide some tips to help college students get started. In no particular order:
Only apply for credit cards if you can do so responsibly
I think this is an important point to make before I say anything else. You should only apply for credit cards if you know you can pay off your balance in full each month and use them responsibly.
This was never an issue for me, since I’m not someone who naturally has the desire to spend a lot of money. But if you’re someone who views a credit card as “oh, this is what I get to spend for the month,” then don’t get one. You can really screw yourself over by getting in debt at a young age, and that’s not something you want to do.
So if you don’t think you can use credit cards responsibly, stop reading now!
Apply for a college credit card first
Chances are that the credit card offers for 50,000+ points are the ones which have you salivating, though realistically you probably won’t be approved for those off the bat.
Instead consider a college credit card. These are cards which likely won’t have much of a sign-up bonus, won’t have an amazing rewards structure, and won’t give you a huge credit line. But they’ll get you started on the right path, and set you up for credit success in the future.
For example, the Citi ThankYou® Preferred Card for College Students is a fairly good college credit card. It offers a sign-up bonus of 2,500 ThankYou points after spending $500 within three months, plus double points on dining and entertainment, and one point per dollar spent on other purchases. There’s no annual fee.
Obviously that’s not as lucrative as the Citi Prestige® Card or Citi ThankYou® Premier Card but it offers something, which is more than can be said about many other cards targeted at college students. It’s one of the best college credit cards out there.
Understand what impacts your credit score
- 35% of your score is made up of your payment history
- 30% of your score is your credit utilization
- 15% of your score is your credit history
- 10% of your score is made up of the types of credit you use
- 10% of your score is your request for new credit
As you can see, your overall utilization and payment history make up a big portion (65%) of your credit score. And those are things you can very easily manage.
Always, always, always pay your bills on-time. Set your payment date for a day of the month you’ll remember. Set a reminder in your phone, calendar, etc. You don’t want to miss your payment date.
Keep your utilization low
I feel like this is something which is specifically worth emphasizing as well, in addition to the above explanation of what goes into your credit score. Always keep your credit utilization low, as this can greatly impact your credit score. Let me explain in the form of an example.
If you get a college credit card chances are that your credit limit will be pretty low. So let’s say it’s $1,000.
If you spend $900 on the card each month, you’re utilizing 90% of your credit. That looks bad to the banks, since they’re saying “hmmm, they’re already almost maxing out their credit; it could be risky to give them more credit.”
Conversely, say you have 10 credit cards with a $10,000 credit line each. That’s $100,000 in available credit.
If you spend $1,000 per month on your credit card, that’s a utilization rate of 1%. Counterintuitive as it may seem, having such low utilization makes the banks more likely to give you more cards, since they view you as low risk. The logic is “they have a lot of credit and they’re using it responsibly, so we can give them more.”
This can be a huge factor in improving your credit score and determining your credit worthiness, so there are three tips I have:
- Just because you have a credit card doesn’t mean you should pay everything with it. If you just have a college credit card, still pay cash for some things, if charging would get you close to your limit.
- Pay off most of your bill before the statement even closes. Your utilization is typically measured when your statement closes, so by paying early you can lower your reported utilization rate.
- Try to keep your utilization rate below 40%, if possible. In other words, if your credit line is $1,000, try to utilize no more than $400 of that revolving line.
Check your credit score
If you’re brand new to credit cards, pick up a single college credit card and spend on it for at least six months. This way you’ll have a good record of payments for several cycles.
At that point I’d recommend checking your credit score and seeing what it looks like. There are plenty of free services out there for checking your credit scores.
Before you even consider applying for more cards, make sure your score is at least 700, and ideally over 720 (give or take). If you’re not at that point yet, just keep exhibiting good behavior on your college credit card.
Don’t go too fast
Let’s say your credit score is looking good and you decide to apply for a card. Don’t go crazy and apply for a bunch of cards at once immediately. Your credit score is still pretty volatile when you only have one card, since minor things can have big impacts on your credit.
Instead get maybe one or two cards, and and continue to exhibit good behavior. Your score could go way up from that, as your available credit increases and your overall utilization decreases.
Know which cards to apply for first
Once you’re ready to apply for the lucrative cards, there’s a method to how you’ll want to apply. This is entirely anecdotal, since it really does vary by consumer. But in general I find that if you have a limited credit history, Chase and Citi cards are tough to get approved for. American Express cards are often easier, especially their charge cards.
For reference, a charge card is a card where you have to pay off your balance in full every month, so it’s lower risk to the banks, since you can’t finance your charges.
Consider a card like the Premier Rewards Gold Card from American Express. But even American Express’ other consumers cards, like the Starwood Preferred Guest® Credit Card from American Express and the Amex EveryDay® Preferred Credit Card are usually not too tough to get approved for, in my experience. I’ve heard lots of reports from readers with a limited credit history being approved for these cards.
Don’t cancel your college card right away
If you do get approved for a premium credit card, don’t immediately cancel the college credit card you had, which may not have been so rewarding. One aspect of your credit score is your average age of accounts, so you’ll want to hold onto the card you’ve had the longest for as long as possible. That will help balance out your age of accounts if you were to apply for new cards.
Many college credit cards have no annual fee (like the Citi ThankYou® Preferred Card for College Students), so there’s not really any downside to holding onto the card.
It’s a marathon, not a race
Using credit cards properly can be extremely rewarding. But know that it’s a marathon and not a race. If you’re a college student you probably won’t be successful in applying for a dozen lucrative credit cards tomorrow.
Instead just exhibit good behavior and start slow at first, and long term you’ll likely be very successful. Over time applying for more cards can help your credit score, rather than hurt it. I have dozens of credit cards and my credit score is in the top 2%.
Why is that? Because I pay my bills on time, I have some cards I’ve been holding onto for a long time, and my credit utilization is really low (I have hundreds of thousands of dollars in available credit, but spend only a very small percentage of that every month).
If you have any questions on the above, let me know below!
Anyone have any other tips they’ve found useful in getting college students approved for credit cards?