As students are learning the responsibility of living on their own in college, they’re also learning financial independence. Creating healthy habits early will go a long way to ensure they graduate on strong financial footing. Here are the top 5 financial mistakes that college students make. This article is provided by Deserve, a credit card designed to help college students establish and build a positive credit history. Learn more at deserve.com.
- Not having a budget
For many college students, money is tight, leading them to spend and/or borrow more than they should. Setting reasonable targets makes it easier to make good decisions. Budgeting also ensures a student won’t take out more student loans than they need (more on that later).
- Not setting aside savings
Considering how much people spend on college, it seems an odd time to say students should be putting precious funds into savings. But students shouldn’t set aside healthy financial habits during college, and saving is one of the most important things they can do. Savings gives them flexibility to deal with emergencies as well as take advantage of opportunities. It also puts them in the habit of saving even when money is tight, which will help them build wealth throughout their life.
- Taking out more student loans than needed
One of the biggest regrets that college students have is taking out too many student loans. It’s tempting to see those loans as free money, or think it will be easier to pay them back after graduation. The truth is, most people that take out the extra loans will spend it. This where having a budget really helps with knowing how much they need. Do they really need a car, nicer apartment, or spending money? They could be repaying those student loans for decades. So only take out what is needed!
- Not building credit history
By the time they finish college, graduates are already behind the curve if they haven’t started building a credit history. Having a good credit history will help them buy a car, rent an apartment or even pass an employment background check! On top of that, having a long and diverse credit history will help build a good credit score.In addition to a long history of paying on time, it helps to get multiple types of credit. Credit scores look for a diversity of bills, such as utilities, loans and credit cards. There are many student credit cards to choose from. Look for one with No Annual Fee and reasonable interest rates. Some credit cards will have a range of interest rates, but keep in mind that only the most qualified will get the lowest rate.
- Going into debt
Many students, upon getting their first credit card, buy expensive clothes or electronics, set free by the power of being able to buy cool stuff without having to save for it. But the reality is that they could be making payments toward that purchase for years. A better way to build credit is to make small everyday purchases on a credit card, and then pay them off every month. If student do carry debt, they can still build a positive credit score. That means, above all, paying at least their minimum payment due on time every month, even if they have to ask their parents for help. If they make that on-time payment, that gets reported to the bureau as a positive factor, just like being late gets reported as a negative factor. On top of making minimum payments, they should try not to use more than 30% of their available credit at a time.
This article is brought to you by the Deserve Edu Student Mastercard. Students can see if they prequalify for a Deserve Mastercard with no risk to their credit score at deserve.com.