“Not free money”: What students should know before getting their first credit card

Tips for building a credit score

Paying off your balance in full each month shows that you're using credit wisely—you're budgeting—your spending doesn't exceed your income. Younger consumers still run into trouble during this stage of life, says Thuy Lam, certified financial planner at Objective Financial Partners.

“I see a lot of students—even as a student, my friends—get into $20,000, $30,000 and $40,000 in credit card debt over the course of their school years because they don't realize, 'Oh, it's not free money. ” he said.

Get a lower limit and resist any offers to increase it until you've established good spending habits, Lam added. For students with little money—no part-time work during school, little savings—this credit card doesn't need to be used at all.

You can place a single bill that appears on your card, such as a phone plan. A small amount is easy to pay off in full and paying it off every month builds a good history of on-time payments.

“I think the key is remembering: what is the purpose of a credit card?” Lam said. “And for students, that's No. 1: making it easier to pay off small loans and, No. 2: building and establishing credit.

“The purpose of a credit card is not to spend money freely, it's because we live in a debt system,” he added. “It's just important to establish credit and keep it healthy.”

Are rewards credit cards good for students?

As for rewards, Taub pointed out that some students may receive support from their parents, savings, RESPs, or scholarships—and with those resources, they may find value in trips, concerts or other lifestyle benefits.

But he also noted that most students are struggling financially; a recent TD survey found 65% of students say they are not financially stable. There may be more value on a simple cash back card.