We always advise young people to get a credit card as soon as they can. This will help them learn some financial responsibility and also start building their credit score. That second part is very, very important as it will be the key number banks will consult when offering you a loan or a new credit card.
But I’m getting ahead of myself. This article aims to explain what to do with a student credit card after graduating, and why. So let’s get busy, starting with the first step…
Contact your credit card company
The first thing you should do is contact your credit card company to let them know that the situation has changed, so that they could present you with other (better) options.
These options, naturally, depend on your new situation, including your salary level and future earnings prospects.
Generally speaking, you may be presented with two options: to keep your current credit card, or upgrade to the new one that is more full-fledged and with higher spending limit.
Don’t get too excited
If your credit card is upgraded and you got a higher spending limit along with other perks, like rewards, make sure not to go on a shopping spree. I guess it’s ok to buy yourself something new as a reward for graduation, but don’t get too excited. Remember that you will have to pay off that balance sooner or later. And the sooner you do it, the better you’ll get.
Also, don’t be tempted with credit card rewards which may come included with your fancy new card. You only get to actually earn something if you make regular monthly payments in full, with no balance to carry from one month to the other. Otherwise, the interest you’ll pay on that balance is worth more than rewards you’ve just earned.
In addition, now that you have a higher credit, you will also have a lower credit utilization ratio which makes up 30% of your credit score. In other words, it is crucial to keep your spending under control, as it paves the way for your financial future. If you acted responsibly, you will be able to get even better cards and more affordable loans.
What if your credit card isn’t upgraded?
This may happen if you haven’t been the most responsible user of that card. In this case, you may be stuck with that card for some time and it is crucial NOT to close it. More on that in a moment, but first — nothing stops you from applying for a new credit card from a different company/bank. You are no longer student and there are more options out there than you can handle.
Shop around and find something that works for you. Again, don’t get too crazy about bells and whistles — you don’t want to rack up debt just to get some points.
Do NOT close your student credit card
This is fairly important so we’re taking a separate section to discuss it. Simply put, closing your old credit card will expunge a part of the credit history you’ve worked hard to create. Unless you have other credit cards, you will basically be starting over from scratch; and you don’t want that. Instead, you should be building your credit history.
An easy way to keep that old account open is to use it for making a few small purchases throughout the year. For instance, you could put a recurring charge on that student credit card, like your Netflix or Spotify subscription, and you’re good to go.
Now that you have graduated from college, you shouldn’t be bothered with small things like selecting the right credit card. But it is important, nonetheless — otherwise, you may end up with a bad credit score, or worse yet, in some serious debt.
So take some time, ask around, talk to your bank and only then, make an informed decision. Good luck!