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In his previous post, our TPG college contributor Mark discussed the best credit cards for college students looking to build their credit. Those cards, most of which carry cash-back benefits are great for diving into the world of consumer credit, but what happens when you want to go after more valuable points-earning cards? Here Mark gives us his insights on how to do just that in a sustainable way for students on a college budget.
Find Out Your Score
The most important first step is finding out what your credit score actually is. There are several factors involved in determining that FICO score. Per the FICO website, the five main factors of your credit score are: 35% payment history, 30% amounts owed (so don’t go maxing out your cards every month), 15% length of credit history, 10% new credit, 10% types of credit.
The highest score possible is 850, and an excellent score is probably somewhere upwards of 750, while anything above 700 is still pretty good. This is the sweet spot for credit card applications, because it proves to the lenders that you are trustworthy and stable as a payer. Notice that your score is not helped by putting a ton of purchases on the card. Anyone of any budget can have a high credit score. I sometimes eat ramen for dinner, and even I have an excellent credit score! And I still earned miles on that ramen.
The key for students—like anyone with credit—is to spend responsibly, pay off your balances every month, and stay out of debt, and before long you’ll have built a respectable credit score that will allow you to apply for some of the more lucrative credit cards out there.
Choosing The Right Type Of Card
Choosing your first “adult” credit card is like picking your college. It could determine your entire future. Well, not your entire future, but most likely where you’ll travel next and where you’ll stay. Credit card points and miles can help pay for travel, whether its study abroad flights or spring break trips, so paying attention can pay off nicely. There are several choices to make at this time, what type of rewards do you want?
Airline Miles-Earning Card: They get you where you want to go. This pretty much comes down to where you live on this planet, and what’s your closest airport. If you live in Houston, you might want a card like the United MilesPlus Explorer, that gets you up to 65,000 bonus miles (based on targeted offers when you log in to united.com) and two free lounge passes each year for the major airline based in your town. Those from Atlanta might want to opt for a Delta SkyMiles Amex card that comes with a 30,000-mile bonus (you just have to spend $500 within 3 months). The Alaska Bank of America card might be right for you since, though you only get 25,000 miles upon approval, you can use them on American and Delta as well as a bunch of other carriers. If you want airline miles to not only get places, but also give you money saving perks like free baggage, this type of card the “route” to go.
Hotel Points-Earning Cards: The choice between cards in this category comes down less to where you live, but where you want to go. When I was looking for my first card, I was planning my epic Europe trip and I wanted to stay at a hotel (not a hostel) in Paris. I chose the Chase Hyatt card because it required no minimum spending and I got two free nights at any Hyatt in the world. That meant I was sleeping in a $900-a-night room at the Park Hyatt Paris Vendome (a TPG fave) for free. The Hyatt Card normally has a $75 annual fee, which might hold you back, but there’s currently a bonus statement credit that waives it for the first year basically. So, it’s possible to get a lot out of that first “grown-up” card without having to spend a lot to get there.
The Starwood Preferred Guest Amex is another great card that has a sign-up bonus of 25,000 points at the moment, but it requires you to spend $5,000 in 6 months in order to get it, so it might not be the right card for you unless you’ve got a lot of books to pay for real soon. The great thing about Starwood points is that you can stretch their value by leveraging the Cash & Points option, meaning you can get sweet hotel rooms for less than a crowded hostel room. I’d say if you’re thinking of going places where hotel rooms are expensive (like Europe) then a hotel card might be the way to go. If you can stay in hostels or cheap hotels and you don’t mind, then you should consider another type of card.
Transferrable Points Cards: These cards, while sometimes more expensive than the ones mentioned above because of high annual fees, often give you better earning opportunities and more flexibility in your travel arrangements. These cards earn “points” that are transferable to partner airline and hotel programs. Again, you may want to see which card is partnered with each airline before making your decision, but the two main programs are American Express Membership Rewards, with 19 airline partners and six (soon to be five) hotel partners, and Chase Ultimate Rewards, with four airline partners and three hotel partners. The relatively high annual fees for cards like the Premier Rewards ($175) and the minimum spend requirements of the Chase Sapphire Preferred ($3,000 in three months) and Ink Bold ($10,000 within 3 months) and might be out of most student budgets, but these are still great cards to consider.
What If You Don’t Get Approved?
Don’t give up! There are reconsideration phone lines you can call if you are not immediately approved for a card over the internet, or flat-out denied. I’ve gotten four of my cards this way, and often it takes some negotiation on your part to win the credit card company over. I have split credit lines between cards—a strategy that might work here is to get a low-fee card, maybe one that doesn’t even earn points, from a bank like Chase or Amex that you don’t expect to use much, then after you’ve had the credit line open for a while, you can apply for the card you really want and get them to switch the line of credit that they’ve already entrusted you with to the new card. It’s pretty hard to argue with that!
I have even explained why a certain card was more of a “lifestyle” fit for me. Try anything. They want your business. If that doesn’t work, maybe your credit score just isn’t quite there yet. Give it time, build your credit wisely, and try again in six months.
Meeting Minimum Spend…Creatively
Once you are approved, there comes a minor caveat: minimum spend requirements. For those “adults” with “jobs,” this isn’t too hard. $3,000 in three months is no sweat for someone with cable bills, car payments, and groceries for a family of five. For a college student, this may be a little out of range. Don’t fret. There are ways to make this work. I’ve used these strategies time and time again.
Group Meals: All college students eat. It’s a basic fact that binds us all. Often, you have that frustrating situation amongst friends at a restaurant eating together when the bill comes. How do we split it up? Who has cash? Save the hassle, and slam your card down. Those are valuable points, and if you have the Sapphire Preferred Card, that means double points! Tell your friends to toss you some cash to cover their share, and sleep soundly knowing you are a points-earning machine. Warning: Don’t spend the cash your friends give you – deposit it and pay off your card right away!
Clubs on Campus: Got a banquet that needs food purchased? Put it on the card. Often, this means immediate reimbursement from your club. One month last semester inked me about 8,000 free points, all for volunteering a card to help my on-campus club in a bind. Just make sure they can pay you back before you make the purchase!
Square: This is a clever one that takes some ingenuity. If you don’t have a smartphone, unfortunately, this route is not for you. If you do, proceed. First, get a Square account. It’s a startup from a PayPal founder that has made any iPhone or Android device a credit card reader. Once you receive your reader, which is totally free, you can swipe credit cards on your own. My strategy involved buying American Express gift cards with my credit card from bigcrumbs.com, which gives you 1.4% cash back on gift card purchases. Then, I used the gift cards on my Square reader when they arrived in the mail. The net loss is about 1.6%, but if you really need to meet spend requirements quickly, $40-$50 upfront is worth it for a $1,000 hotel stay or flight you can book with those 50,000 points.
Again, though, to get approved for these cards and to keep your points-earning strategy sound, you need to be responsible about using your credit and pay off your bills every month, because those APR rates can get very high when you make late payments, and decisions you make about your credit now as a young person will affect you in the future.