Student credit cards are tailored for young adults who are actively pursuing a college degree.
A good student credit card offers benefits focusing on a student’s buying preferences.
When choosing a card, students must consider several factors, including fees and rewards.
Using a student credit card, you can develop good financial habits and build a solid credit rating. When choosing a card, students must consider several factors, including fees and rewards.
Let’s explore student credit card options, how to apply, and what to look for in a credit card.
How Student Credit Cards Work?
Student credit cards are tailored for young adults who are actively pursuing a college degree. They operate similarly to standard credit cards but typically have more lenient qualification criteria. This makes them a convenient choice for students who are in the early stages of establishing their credit history.
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What is a Good Student Credit Card?
A good student credit card offers benefits focusing on a student’s buying preferences. Students may spend dollars on dining out, tickets to events, or purchase gift cards.
Students can also benefit if they can be approved with a limited credit history. Good student credit cards don’t charge annual fees or foreign transaction fees, so using the card is less expensive.
What You Should Look for in a Credit Card
If you’re considering a credit card right for you, think first about spending. For example, a student studying abroad may spend more while traveling overseas. A US-based student might not spend as much, which may go toward dining and other expenses mentioned above.
Avoiding Card Fees
Card issuers make money by charging interest on card balances and fees. With proper planning, you can use credit cards and reduce or eliminate many credit card fees that make usage expensive. Annual fees are charged for being a cardholder, and the fee is charged once per year. Find a credit card that does not charge an annual fee. When you use a card with no annual fee for several years, your expenses are lower, and you can build a better credit rating over time.
Understanding Credit Scores
Look for a credit card that reports your card activity to the major credit bureaus, including Equifax, Experian, and TransUnion. When cardholders make payments on time, they want the positive activity to be reported to all three credit bureaus.
In addition, most card issuers will tell you the range of credit scores you need to secure approval for a credit card.
Reviewing the Annual Percentage Rate (APR)
Card issuers charge interest on card balances that accumulate after the end of each month. If you can carry over an unpaid balance, the interest rate you charge is the annual percentage rate (APR).
The average credit card’s APR is over 25%, so your interest payments will be expensive. Students with limited income may struggle to make payments, so think carefully before spending. On the other hand, your credit history will improve if you pay your entire card balance each month.
Rewards for College Students
Your credit card research process should include cashback rewards. How generous are the rewards, how much do you have to spend, and how do you redeem rewards? You may be able to reduce some travel costs using rewards. This is helpful if you’re traveling home or deciding to study abroad.
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Student Credit Card Requirements
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 changed the rules for credit card applicants.
The CARD Act was created to eliminate credit card issuer practices that many customers thought were misleading or deceptive. Credit card terms, including fees, late payments, and interest rates, were not properly disclosed. As a result, many students were approved for credit cards and earned large balances that they could not repay.
The minimum age requirement to apply for a card is 18. In addition, the CARD Act requires applicants between the ages of 18 and 20 to show proof of independent income, meaning income earned solely by the student. Independent income can be generated from a full-time job or part-time work. The tax documentation proving income may be a W-2 or 1099 form.
If you don’t have an independent income, some card issuers may approve your application if you have a co-signer who also takes responsibility for payments. Not all card issuers allow co-signers.
Becoming an Authorized User
If you don’t generate your own income and you’re not 21, you can become an authorized user of another person's card. You make purchases using the primary cardholder’s line of credit. Your purchases and payments will be added to your credit history, and you can build good credit before age 21.
Using a Secured Credit Card
Another option is applying for a secured credit card. Keep in mind that a secured card requires you to pay a security deposit, and the deposit may serve as your credit limit. The deposit limits the card issuer’s risk, but a student may not have funds available for a security deposit.
Students who can make a security deposit can build credit by using the card. Eventually, the student may get the deposit back, continue using the card, and make timely payments.
You also may be able to find a starter card, which is a card for people who don’t have a credit history.
Understanding Requirements at Age 21
When you reach age 21, some of the CARD Act restrictions no longer apply to you. Moving forward, you’ll apply for credit by supplying your birth date, Social Security number, income, and credit history. This is the same process used by other borrowers.
Think carefully about how you apply for a credit card and the potential impact on your credit history.
How To Use Your Student Credit Card Responsibly?
When utilized wisely, credit cards can be an effective financial instrument.
Establishing a solid credit history begins with practicing responsible credit card usage. By embracing healthy credit habits, you can avoid credit card debt, minimize interest charges, and cultivate a good credit score.
Here are some key strategies for responsible credit card use:
- Monitor your spending closely.
- Aim to make purchases that you can fully pay off within a month or two. (This approach can help reduce the interest you accumulate and simplify paying off your entire balance.)
- Ensure timely payment of your bills.
- Always pay at least the minimum payment due as listed on your statement.
The Bottom Line
Life as a student can be hectic, and improving your finances may not seem like a priority. With research and financial discipline, you can use a student credit card to build a credit history for the future.
Consider all the factors that impact credit cards, including fees, application requirements, and how you’ll make purchases and card payments. Cardholders may also benefit from card rewards, and you may be able to save money by earning cashback rewards.
Students who use cards responsively build a credit history that can move them closer to financing a vehicle or a home down the road. If you can stay disciplined, you can build a great foundation for the future.
How can students reduce the fees and expenses charged on a student credit card?
Find a card that does not charge an annual fee.
How does a card issuer benefit from the deposit made for a secured credit card?
If the cardholder does not pay principal or interest payments, the deposit can be used to pay the fees, reducing the card issuer’s risk of loss.
Why does a cardholder need credit activity reported to all three of the large credit bureaus?
Lenders may pull credit history data from any one of the three large credit bureaus. It’s important to have the same information reported to all three agencies.