Starting College: Give Yourself Some Credit

Anatomy of a credit card


  • Start building your credit history and apply for a credit card when entering college
  • Use it to buy textbooks and supplies, and everything else – as an alternative to cash
  • Exercise fiscal discipline and pay off your balance in full each monthly cycle
  • Don’t use it to get into debt
  • What to look for in a student credit card:
    • no annual fees
    • earn points towards a cash rebate or travel credits
    • no foreign transaction fees
  • We recommend a few credit cards worthy of this purpose

Congratulations – you are starting college!

Starting college is an exciting time. Newfound freedom. New friends. New experiences. New intramural sporting opportunities. And let’s not forget new academic challenges.

UNC Chapel Hill
UNC Chapel Hill is the oldest public university in the United States. (photo credit: author)
New Financial Life

It’s also a great time to establish your new financial life. A checking account to safe-keep your hard-earned money and have ready-access to cash. It’s also a great time to start building your credit history. Having a good credit history means that you are a reliable borrower, low risk, most likely to pay back your debt. If banks and financial institutions recognize you as a low risk borrower, your chances of getting a loan (credit card credit limit, auto loan, mortgage) is higher and the interest rates that you would be paying are generally lower, than others who are considered riskier borrowers.

This concept is embodied in your FICO score, assigned by the financial industry and lenders to each consumer like you. The FICO score ranges from 300 to 850 (kind like SAT score). The higher the score, the better – the lower risk the borrower is. An average FICO score is 600-700, good is 700-750, while 750-850 is excellent. Your FICO score is computed by considering:

  • your payment history (35%) – reliable on-time payment each month
  • amounts owed (30%) – the lower your balance, the better, because it means you have a capacity to take on more debt (not that you would want to)
  • length of credit history (15%) – this will take time, that’s why you’re starting to build your credit history now
  • credit mix (10%) – recognition for the various types of credit (credit card, auto loan, mortgage)
  • new credit (10%)

For now, you should concentrate on the first two bullets. Read more about the FICO score.

How do you start building your credit history? For most people, it by obtaining their first credit card when they turn 18 years of age which is generally coincident with starting college.

How A Credit Card Should Be Used

Before we go any further, let’s manage your expectations. A credit card is not for running up a balance and getting into debt. That’s not the ideal way to build credit, or a fiscally responsible way of using credit.

Use it in lieu of using cash or checks to buy textbooks, school supplies, food at groceries, eating out, and just about everything else. It’s very convenient. It’s just like using your parents’ credit cards, except this time, you’re responsible for paying the bills. Ah, with financial freedom comes with great responsibility.

Speaking of which, do exercise fiscal discipline and pay off your credit card balance in full each monthly cycle. This is how you build your payment history and at the same time keep your amounts owed low to build up your FICO score. Don’t just pay the minimum payment required each month. Don’t use it to get into debt and begin the vicious cycle of paying exorbitant interest rates. This is what we call the modern day indentured servitude. You would be slaving to make the lenders richer.

If you carry a credit card balance
and just make the minimum payment each month,
you would be paying exorbitant interest rates
on the remaining balance.
This is like putting yourself into
the modern day equivalent of indentured servitude.
Don’t do this!

What to Look for in a Credit Card

No Annual Fees. Some banks charge a credit card annual fee for having the credit card (whether you actually use it or not). With so many options of no annual fee credit cards, there is generally no reason to go with credit cards that charge an annual fee. (The only exception when you might consider doing this is if the credit card offers some kind of worthwhile incentive, value-added service, or sign-in bonus.) For your first credit card, let’s stay with no annual fees.

Earning points towards a cash rebate or travel credit/miles/points. The better credit cards will provide incentives such as earning points towards a cash rebate or travel credits/miles/points. How can credit card companies do this? Whenever you purchase something with a credit card, the credit card company charges the merchant something like 2% of the transaction. Decades ago, credit card companies started to pass on a small part of the revenues they collect as transaction fees to customers as a way of attracting business. (The money maker for credit card companies is the interest payments you would pay if you carried a balance from month-to-month. That is where the credit card companies make their money. So don’t be party to making them richer.) The incentive to the consumer is usually in the form of travel credit, miles or points. For example, some credit cards offer a point for every $1 that you spend. A point is usually worth about a penny. Some credit card companies will let you earn 1.5 points per dollar spent, or even 2 points per dollar spent, which are equivalent to 1.5 pennies or 2 pennies. You’re basically getting a rebate of 1%-2%. This may seem paltry, but these points really add up. And it’s a chance for you to cash in on the transaction fees that they collect from the merchant. And the merchant prices this fee into the price they charge. If you pay by cash, you forgo this rebate because most things cost the same regardless of how you pay for it, cash or credit. (Okay, except for maybe gas at some gas stations.) Bottom line, points are where it’s at.

Rotating Categories for Additional Points. Some credit cards offer a quarterly rotating set of categories where they offer additional points for using their card to buy goods or services in those set categories. For example July-September, you would get 5 points for every dollar spent at For October-December, you could get 5 points for department stores (e.g., Macy’s, Dillard’s). For January-March, 5 points for shopping at home improvement stores (e.g., Home Depot, Lowe’s). For April-June, it could be 5 points for dining at restaurants. These are just examples. To take advantage of these rotating categories, you would have to opt in by clicking on the email invitation link and possibly login to the credit card online site to activate the savings for the quarter. Some credit card companies have made it easier with just one click and no login. Purchases that do not qualify for these rotating categories still qualify for the base points, (e.g., 1 point per dollar).

No foreign transaction fees. Some credit cards an additional 2%-3% to the consumer for using the credit card for foreign transactions. You pay this in addition to what goods and services that you’re paying for. It does not show up on the receipt that you get from foreign merchants. Rather, these foreign transaction fees show up only in your credit card statements as additional fees. Fortunately, some credit card offerings do not charge foreign transaction fees, so you can travel abroad and deal with international merchants while still in the United States without these additional fees.

Security chip. Almost all credit card issuers now have this feature as an extra security measure above and beyond the old magnetic strip that you swipe across the credit card reader. With the security chip, you insert the end with the security chip into the point-of-sales device and it takes 5-10 seconds to read the electronic data stored on the security chip.

Anatomy of a credit card
Anatomy of a credit card

Other Perks and Services. Many credit cards offer rental car damage waiver coverage, purchase protection, extended warrantee, travel accident insurance. Some even provide lost luggage, travel cancellation/delay insurance if you pay for the car rental, product, airline tickets using their card. There are no additional forms or paperwork to get these benefits. It’s only when there’s an issue would you be contacting the credit card to file a claim, usually a third-party insurer affiliated with the credit card company. Be sure to read the Terms and Conditions booklet carefully that comes with your new credit card.

Comparison of College-Student Friendly Credit Cards

Here is a comparison of the most popular credit cards for college students. We make the following assumptions: you will not be carrying a balance month-to-month, and pay the exorbitant interest rate.

Comparison of the most popular credit cards for college students
Comparison of the most popular credit cards for college students
Recommended Credit Card

We recommend the following credit card:

Discover it credit card. This is the best card to use in the good old USA.

  • Pro:
    • 1% cash back
    • 2% cash back in rotating categories
    • FICO score info
    • $20 cash back each school year your GPA is 3.0 or higher for up to 5 years.
    • Match all the cash back you’ve earned at the end of your first year automatically.
    • $50 Cashback Bonus when you make your first purchase with the Discover it Card within the first 3 months, by using our link to apply.
  • Con: Though no foreign transaction fee, Discover Card is slightly less widely accepted than Visa and Mastercard, especially abroad. Students planning foreign travel/study should consider the Bank of America Travel Rewards Visa credit card also.
  • Click here to apply – use our link to apply and get $50 Cashback Bonus when you make your first purchase with the Discover it Card within the first 3 months.
Apply for Your First Credit Card

To apply for a credit card, you would need to provide your social security number, date of birth. Depending on the credit card company and your credit history, they may ask you to send a copy of your social security card, and proof of residency (utility bill at your college address).

When You Receive Your First Credit Card

Read the package carefully. Understand all terms and conditions.

Activate your card, either online or your phone. Online is better, since some companies will try to up-sell you other services after your card has been activated.

Sign the back of the card.

Keep your card information in a safe place. In case you lose your card, you know the customer service phone number.

Using the Credit Card

Pay Your Balance Off In Full Each Month. Seriously, do not carry a balance from month-to-month on a credit card. Most American households have credit card debit, but that’s not a good thing.

Remind yourself. Use a calendar appointment to pay the credit card bill in full each month. After setting the payment each month. Move the appointment to the next month, or create a recurring calendar appointment.

Direct automatic withdrawal from your checking. From your credit card online account, you can sign up to have the full balance paid each month by automatic debit from your checking account. Just be sure to have enough funds in your checking account each month to pay the credit card balance in full.

Sign up for Alerts. You can sign up online for email or text alerts for various events. We recommend signing up for every transaction that way you know almost in real-time if the merchant charge you the right amount. Sign up for alerts to remind you of when statements are ready, payments are due, payments are received.

Checking Your Credit Score

Going back to the original objective of building your credit history, you can occasionally check on your FICO credit score. While this score changes about once each month, you only need to check your FICO credit score about once or twice per year. Discover offers this for free at any time and any frequency:

If you have a Discover it Card or a Bank of America Cash Rewards for Students Visa, your FICO score is printed on every statement (hardcopy or electronic PDF).

Discover it card shows your FICO score on every monthly statement.
Discover it card shows your FICO score on every monthly statement.


Building a credit history takes time. Why not start it as early as you can, during your freshmen Fall semester? Click here to apply for it. Use it. Pay it off in full every month. And build your credit history while enjoying the wonderful years in college. Upon graduation, you would have established a great credit history to begin the next phase of your life.

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