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Young adults looking to begin building their credit history may find a student credit card the easiest way to begin. Many young people only have access to credit because their parents have added them as authorized users on their own accounts. But using a parent's credit card will not improve a student's credit score or build a personal credit history. The importance cannot be understated, as it will be nearly impossible to get a car loan, home mortgage, or other line of credit without a good credit history. Student credit cards give you the chance to build positive credit on your own.
Credit card companies are willing to risk lending to students, whom they consider responsible borrowers, in hopes of creating new, savvy consumers. Generally marketed to college students, anyone can apply for one of these specialty cards, including high school students. There are many benefits of using one:
- Extended warranty on purchases
- Earn rebates or rewards
- Additional consumer protection benefits
- Establish or increase credit history/score
- Learn money management skills and discipline
Especially helpful for students who need additional financial resources to cover campus living expenses, student credit cards require no previous credit record and no source of income, but these cards do carry heftier fees and interest rates. Approval is relatively easy, but anyone under the age of 21 will need to meet one of two requirements that don't apply to a traditional credit card: have a co-signer or prove that the student has adequate income to make the monthly payments. Students who obtain a co-signer will be almost guaranteed approval, if their parents have good credit.
Two Types of Student Cards
- The easiest card to be approved for is a secured credit card. The money you will be spending must be deposited in advance with the financial institution. There is no accumulated debt, as you will be spending your own funds.
- The second option is an unsecured card. This is a standard credit card that requires no deposit of funds but may be harder to get approval. Interest charges will be incurred whenever a balance is carried over from month to month. An interest rate in the mid-teens is reasonable for students.
Comparison shop to be sure you're getting the best possible contract. If a student has the personal income to be approved without a co-signer and the conviction to make payments, there are several important things a credit card should offer to be in the best interest of a new credit consumer.
- A Low Annual Percentage Rate (APR)
- No Annual Fee
- A Low Credit Limit - Minimizes the damage, if the temptation is too great and they go on a spending spree.
- Terms, fees and interest rates clearly understood before applying.
Using Student Credit Cards Wisely
- Use your card only for necessities Take advantage of online account access to keep track of balances and payments.
- Prepare a budget stick with it. Even though new credit card consumers are typically offered a limit of $500 to $1,000, limit yourself to what you can repay each month.
- Examine all communications and monthly statements. Keep receipts of credit card purchases to verify your expenditures.
- Rewards are a nice perk but don't get them entice you into using credit only for a reward. or outside your budget.
- Stick to one credit card, set limits on what the card can be used for and commit to keeping them.
- Stay Organized - Keep account numbers in a secure place. File and save monthly statements. Mark the calendar and check your accounts online regularly. Call the credit card company whenever contact information changes, i.e., cell number, address.
In conclusion, student credit cards, like traditional credit cards, carry a great deal of responsibility and may be a crucial first step in building a healthy credit record. How it is handled can affect a student's financial future for years to come and all aspects need to be thoughtfully considered when choosing to begin using credit.
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a complete list of student credit cards >
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