How should college students handle their first credit card?

As millions of Americans around the country begin their freshman year at university, they are encountering many firsts on campus: Their first dorm room, their first college cafeteria and often, their first credit card.

College is famously fertile ground for banks looking for new customers. Students starting out on their own need credit access, are developing spending habits, and are all living and attending classes close together, which makes for a rich environment for lenders to target.

According to a recent WalletHub study, 85% of college students have credit cards, the average balance is $2,100, and 20% are carrying balances over $5,000.

Here's the danger: Students don't yet have a lot of financial experience, and when suddenly given thousands of dollars of credit, may not yet know how to use it wisely. They can easily rack up very large debts in short order, digging themselves a hole that could take years to get out of.

Just one worrisome example: According to the WalletHub analysis, the percentage of students paying off their credit cards in full every month has declined 12.5% since 2018.

"In my early 20s, I racked up more than $20,000 in credit card debt because I didn't understand a simple but critical rule: If you don't pay the balance in full every month, today's purchases can become tomorrow's financial burden," says Corinna Rose, a financial planner in Benicia, Calif. "I'm probably more passionate about this topic than most because I learned the hard way."

What protections do student borrowers have?

Federal law limits how aggressively credit cards can be marketed to students. The financial temptations used to be even worse for college students: Constant credit offers on campus led to legislation like 2009's CARD Act . Its provisions include prohibiting issuing cards to those under 21 without a co-signer (unless they can prove their own ability to pay), requiring parental approval to increase credit lines, and mandating debt education for new students.

But even with those restrictions, college is often the first time young adults will be applying for and securing credit. So it's wise to do so thoughtfully, thinking through all the ramifications, and having a smart strategy in place from the outset.

How should students choose their first credit card?

Be selective. Just because a firm is offering you credit doesn't mean you have to take it. Instead, do your due diligence and figure out which cards make the most sense for you.

After all, sometimes colleges have financial agreements in place to push a certain bank's products and services. That may generate fees for the institution, but it also means they "can steer students into more expensive products," wrote the Consumer Financial Protection Bureau in a 2024 report.So look past the fancy sign-up giveaway, focus on more important information like interest rates, and start slow with one card and a relatively low credit limit, suggests Rose.

"I often tell young adults to treat a credit card like a debit card: If you don't already have the cash in your checking account, don't swipe," Rose says. "The biggest mistake students make is confusing a credit limit with money they can afford to spend."

How can students build credit without going into debt?

Secured charge cards, such as Current’s Build Card, are a great way to build credit while minimizing debt, because you can only spend the amount of money available in your account. That structure helps you develop positive spending habits and a good credit history at the same time, without the temptation of an open-ended credit line.

With Current's Build Card, funds are held in reserve as you spend to pay your bill each month. Your on-time monthly payments are then reported to the three major credit bureaus (Equifax, Experian and TransUnion), and members have an average credit score increase of 81 points six months after starting to use the Build Card.

Keep in mind that a high credit score will take some time to develop for young students just launching into the world. As a general benchmark to aim for, a FICO score of 670 and up is considered good, according to Experian. Contrary to what some new borrowers might think, reaching that score doesn't require making big purchases on credit. Steady, on-time payments matter far more than big balances.

When should credit education start?

Credit education should start well before freshman year. Part of the danger with campus credit is that students don't yet have much of a history of dealing with money on their own.

The way to fix that is to bring teens into family money conversations, early and often, so that by the time they hit freshman year, they are already very familiar with money management and won't be overwhelmed by the college credit blitz. Adding them as an authorized user on family cards, for instance, is one way to get the ball rolling, even if they're not actively using those cards right away.

"As I often tell my clients, the best time to teach credit is before it is needed," says Gregory Guenther, a financial planner in Matawan, N.J. "At 18, parents can help their child consider a starter or secured card. I recommend using it for a predictable expense, setting automatic payment for the full balance, and reviewing the statement together monthly."