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Avoid These 7 Common Credit Mistakes in College

Last Updated: July 10, 2024

8 min read

Table of contents

Key Points:

Excessive credit card usage can result in debt and financial instability for college students.
Setting up automated payments or using reminder apps can help you to pay credit card bills.
Avoid spending beyond your means with responsible spending habits.

So, you’ve made it to college and you’re finally enjoying your first taste of freedom. With all that freedom comes some newfound responsibilities—should you stay up late hanging out with your new friends or head home early and study for that exam? Do you want to splurge on a new outfit? Pizza or salad? Sometimes it’s not easy to make the “right” decision.

Thankfully, when it comes to credit cards, we can offer some help in your decision-making process. College should be filled with all sorts of new opportunities, but credit card debt shouldn’t be one of them.

We’ve prepared some guidance on the seven common credit card mistakes college students should avoid. Understanding how credit cards work and starting good credit habits early can set you up for a future of financial success.

Choosing the wrong type of credit card

Did you know you have a spending lifestyle? You might find most of your spending goes into certain purchase buckets like groceries, gas, or eating out. Finding the best credit card that will reward you with perks, points, or cash back on these kinds of purchase categories can help you save money overall. It’s like free money for spending on things you already do.

With the Discover it^® Cash Back Credit Card, you can earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, you earn unlimited 1% cash back on all other purchases—automatically.

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To take full advantage of rewards spending, nearly every purchase should be on a credit card. Doing this can also help you keep all your purchases in one place, potentially making it easier to budget—you’ll see where you spend your money and where you could cut back. Just remember to pay off your balance in full each month if you want to avoid paying interest.

Forgetting to pay your monthly bill on time

One of the biggest ways a college student can get into trouble with a credit card is by missing a payment. A missed or late payment could result in late fees, higher interest rates, and a lower credit score. A low credit score and a poor credit report can affect securing other credit in the future, like a mortgage or an auto loan.

To steer clear of this, set up automatic payments through your card issuer (Discover card has a DirectPay option). Some credit card companies may offer an app that allows you to set up alerts to track when payment due dates are approaching. The Discover Mobile App, for example, allows you check your credit card balance, set a reminder for when your statement is available, see when a payment is due, and notify you when a payment has gone through.

Is it better to pay off your credit card each month or keep a balance? By paying your balance in full every month, you could avoid interest charges or losing your grace period, according to the Consumer Financial Protection Bureau. A grace period is typically from the day a charge posts to the payment due date on your following credit card statement.

Spending more than you have

The impulse to spend more than you have can be hard to resist as a college student, but it’s the best for your financial health. There are several important reasons college students and recent graduates should avoid excess credit card usage.

First, by relying heavily on credit cards you might create debt that’s challenging to overcome. When you graduate, that debt will mean starting a new career with income already earmarked for paying bills. Developing responsible financial habits early on is crucial for long-term financial stability.

Second, excessive credit card usage can impact your credit score. Your credit utilization makes up 30% of your credit score. A poor credit score can make it difficult to secure loans or favorable interest rates in the future, hindering important financial milestones such as buying a car or a home. By using credit cards responsibly, college students can maintain a good credit score and establish themselves as reliable borrowers, setting a strong foundation for their financial future.

According to data compiled by Experian^®, the average credit card debt for Americans was an estimated $6,501 through the end of the third quarter of 2023. This number has been on the rise for the last year. Creating a spending plan may help you avoid this financial pitfall.

Did you know?

A secured credit card may limit the amount you can spend because your credit is limited to the amount of your security deposit. This option offers the card issuer built-in protection from a cardholder who might default on a payment.

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It is not uncommon for those who are new to credit to get a secured credit card because they don’t have enough credit history. Lenders use credit to assess the likelihood a potential customer will pay their bills on time. Using a Discover it^® Secured Credit Card with smart habits like paying all your bills on time and in full each month can help you build credit with responsible use.¹

Avoiding your card altogether

The instinct to pretend your card doesn’t exist may come from good intentions—like not burying yourself under a mountain of debt. But one of the points of having a credit card is to build credit history, which you do by showing your ability to borrow and repay money.

The Discover it^® Student credit card, for example, helps members track spending and makes paying bills simple through the Discover Mobile App. Plus, there are rewards and benefits for using the card: you can earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, you earn unlimited cash back on all other purchases—automatically.

To maintain a balance between building a credit history and overusing your card, consider a spending plan that uses your card for set purchases each month, like gas or groceries. That way, you’re still building credit while keeping your monthly bill manageable.

Opening multiple accounts

You might find credit card offers enticing, especially when your favorite retailers offer a hefty discount just for signing up. But it’s important to stay strong in the face of a one-time 30 percent discount on your purchase. While there’s no magic number for how many cards is too many, it’s usually best to stick with just one card when you’re starting out; that way you can more easily track your spending and develop smart credit habits. Once you’re successful with one card, you can think about adding more to your credit mix.

If you decide to open another account (particularly with a retailer), be aware of the interest rates or annual fees, and plan to pay your balance if in full and on time, if possible.

Paying cash advance fees

One of the biggest credit card mistakes any user can make is paying cash advance fees. A cash advance lets you borrow cash from your credit card, usually limited to a percentage of your total credit line. However, fees and interest can make a credit card cash advance a costly option for a short-term loan.

Cash advance fees kick in when you withdraw cash from an ATM using your credit card. While a cash advance fee is typically a percentage of the amount withdrawn—for example 5% on a $100 withdrawal–the interest rate is usually higher than the rate you’d pay on standard purchases.

Interest starts accruing right away on cash advances so it’s best to only use a cash advance in emergencies.

Waiting to notify your issuer of a lost or stolen card

If you lose your credit card, freezing your account can give you a chance to find the card without canceling it entirely. With Discover, If you misplace your card, you can prevent new purchases, cash advances, and balance transfers in seconds with the Freeze it^® on/off switch on our mobile app and website.²

You should report stolen or lost cards immediately to your credit issuer. According to the Federal Trade Commission, consumers have limited liability for unauthorized charges or fraudulent credit card charges under the Fair Credit Billing Act. You’re never held responsible for unauthorized purchases on your Discover Card.³

Waiting too long to report your card as lost can leave you vulnerable to identity theft. A thief can steal your identity well before you’re even aware you can’t find your card. Consider also using identity theft protection services, which can help you identify potential fraud.

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