When I came to college in 2004, I noticed how much advertising was targeted towards freshmen. From tanning packages to bank accounts to apartment leases and beyond, marketers increasingly focused their efforts on gullible students freshly liberated from Mom and Dad. It seemed to work… I saw all my friends signing up for things just so they could get free t-shirts and the like. The worst offender, however, was definitely the credit cards. “Get a free pizza for applying!” “Sign up now and get an OU hat!” I saw all of the incentives, and all of the people who were drawn like moths to flame.
I also saw everyone around me fall victim to the siren song of being able to buy things without having to actually fork over cash, and subsequently go into debt. (Okay, not everyone, but you’d be surprised how many people I know here that are in significant credit card debt. I differentiate this from other debt such as student loans.) I’ve never believed in the concept of spending more than you have, and through high school had just used a debit card so that any money I spent was immediately removed from my account. I always knew exactly how much I had, and budgeted accordingly.
In May of 2007, however, I finally sat down and started looking for a credit card. I knew I needed to start building a credit history, and I thought that I could successfully work the system to earn some money rather than going into debt. I didn’t bother with all the hawkers around campus… I just hopped onto FatWallet Finance and started sifting through discussion of credit cards. I had no financial history, so I narrowed my search down to student cards, which are easier to get but come with a correspondingly lower credit limit. I eventually settled on (the terrible cobranding notwithstanding) a Citibank mtvU card. No, I wasn’t drawn by the lure of some advertisement; it simply offered the best selection of features that appealed to me.
Credit cards come in a few basic flavors. Regular old vanilla credit cards, of course, let you put your purchases on account, with a promise to pay them off in the future. If you don’t pay the account in full each month, you incur finance charges equal to a percentage of the balance. But some cards have additional incentives to use them. Cashback cards refund a certain percentage of some or all of your purchases as a statement credit, usually about 1%. Points cards award points per dollar you spend, and the points can be redeemed for prizes such as gift cards.
My mtvU card is a points card that gives 5 points per dollar on restaurants, movie theaters, bookstores, music stores, and video rentals. Pretty much exactly what a college student spends money on, right? It also gives 1 point / dollar on everything else. 5000 points can be redeemed for a $50 gift card, so points are basically worth a penny. Additionally, there’s a very unique perk: 2000 points every semester you get a 4.0 GPA. That’s basically $20 for free every time I get through a semester. So in about a year and a half of using this card— simply as I would have used a debit card or cash or whatever— I’ve racked up tens of thousands of points. Enough points that I have gotten over $400 worth of gift cards and statement rewards, and enough points that I bought a Nintendo Wii earlier this semester for $20.76
The trick, though, is that I pay the full statement balance every month, pretty much using the card as a delayed debit card. I’ve just set up my account online to automatically debit my checking account each month when the statement is due. To make sure this doesn’t come back to bite me, I never spend more than I have at the time, even if I knew that I would have the money by the time the statement came around. Paying consistently on time has helped my credit score as well; I now score in the top 10% of all 18-25 year olds.
So in the end, I’ve spent nothing that I wouldn’t have otherwise. I’ve earned a little extra interest by keeping my money in my bank account longer (since it only comes out every 45 days instead of immediately). And I’ve gotten over $800 now of cash, gift cards, and rewards. The next time I bring this subject up I’ll go over what I carry in my wallet to earn as many rewards as I do.
If you use a credit card responsibly, it’s great. You never need to carry much cash. You have fraud protection that a debit card doesn’t provide. You have the ability to make chargebacks. You earn rewards points. And you keep your money longer. You can’t go wrong as long as you don’t carry a balance