For undergraduates, graduates, or non-traditional students, selecting a credit card tailored to your requirements is an excellent method to manage finances and establish credit while managing student responsibilities. Building a positive credit history from the outset can greatly influence future financial endeavors, such as renting your initial apartment, buying your first car, or securing a mortgage. Here’s a guide to student credit cards and how to utilize them effectively.
What is a student credit card?
A student credit card serves as a starting point for students embarking on their credit journey, enabling them to establish a credit history for their future financial endeavors. Similar to other credit cards, a student card provides a revolving line of credit for purchases, with the balance and any associated fees to be repaid at a later time.
What distinguishes a student credit card are its key attributes:
- Ease of Approval: Student cards typically have lenient approval requirements tailored to students with limited or no credit history.
- Student-Focused Eligibility: These cards are designed with student-based eligibility criteria in mind.
- Lower Credit Limits: Student credit cards often come with lower credit limits compared to traditional cards.
- Student-Oriented Rewards: Some student cards offer rewards tailored to student spending habits, such as on streaming services, dining, or Amazon purchases.
Students applying for their inaugural credit card may encounter challenges due to their limited credit history. However, student card issuers understand this predicament and adjust their approval standards accordingly, making it easier for students to qualify. While enrollment in higher education is typically a prerequisite, full-time student status may not always be mandatory, subject to issuer-specific criteria.
Although certain student cards may offer modest rewards, such as cash back or points, others may provide incentives for purchases commonly made by students, such as on streaming subscriptions or dining expenses.
Reasons to get a student credit card
It’s common for credit card novices to perceive credit cards as a source of “free money,” but the truth is, they’re one of the costliest forms of borrowing. When contemplating obtaining a student credit card, it’s crucial to approach it with the following intentions:
- Building Credit History: Utilize the card to establish a positive credit history, which is essential for future financial endeavors.
- Earning Rewards and Reducing Interest Charges: Take advantage of rewards programs while minimizing interest expenses by paying balances in full and on time.
- Emergency Preparedness: Use the card as a financial safety net for unexpected expenses or emergencies.
- Developing Responsible Credit Habits: Learn to manage credit responsibly by using the card judiciously and making timely payments.
Building credit history
Building credit is crucial because it provides insight to prospective lenders about your reliability in repaying borrowed funds, influencing the terms and interest rates they offer. Without established credit, achieving various milestones may become challenging or costly, including:
- Renting an apartment
- Obtaining a cellphone plan
- Purchasing a vehicle
- Buying a home
- Securing the most favorable insurance rates
By establishing your credit history early on, you can avoid the hurdles associated with navigating financial transactions without a credit record.
Earning rewards
Numerous student credit cards provide cash back incentives tailored to common student expenditures such as dining, entertainment, and fuel. Some cards even offer additional perks like purchase protection and credit-building tools designed for those new to credit.
For example, the Capital One SavorOne Student Cash Rewards Credit Card offers 3 percent cash back on dining, entertainment, select streaming services, and grocery store purchases (excluding superstores like Walmart and Target), along with 5 percent cash back on hotel and rental car reservations made through Capital One Travel, 8 percent on Capital One Entertainment purchases, and 1 percent on other purchases. With rewards spanning a wide range of spending categories, such a student card provides significant benefits for most typical expenditures of young adults.
Moreover, many student credit cards waive annual fees, and some even eliminate foreign transaction fees, which could be advantageous for students planning to study abroad. Nonetheless, it’s essential to review the card’s terms and conditions for complete details.
Covering emergencies
As you embark on your journey into adulthood, unforeseen circumstances are bound to arise. While having an emergency savings account should be your primary means of financial protection, there may be situations where the cost exceeds your savings. In such cases, having a student credit card can be invaluable.
For instance, imagine your car battery suddenly fails, leaving you unable to get to work or school. With insufficient funds in your savings account to cover the replacement cost, using your student credit card allows you to swiftly address the issue and manage the repayment of the balance over time.
Learning to use credit responsibly
Student credit cards offer both advantages and disadvantages. Using your student credit card responsibly is crucial for building good credit and fostering healthy financial habits. Timely payment of obligations is a key aspect of responsible credit use. However, as you’re still learning, occasional slip-ups may occur.
One notable benefit of student credit cards is that they often approve students with no credit scores. Some student cards are lenient regarding late payments, with some even waiving the first late payment fee. For instance, the Discover it® Student Cash Back card doesn’t charge a late fee for the first late payment, but subsequent late fees can amount to $41.
Nevertheless, consistent missed credit card payments will inevitably harm your credit score. If you’re unable to pay the card balance in full, ensure you make at least the minimum required payment by the due date to avoid late fees or significant damage to your credit score.
Risks of a student credit card
Student credit cards also have drawbacks to keep in mind.
High interest rates
In addition to high interest rates, student credit cards typically come with lower credit limits. As you establish your creditworthiness through a history of timely payments and responsible usage, your issuer may raise your credit limit automatically or upon request. However, until then, you’ll likely have to manage with a relatively low credit limit.
Lower credit limits
Student credit cards cater to undergraduate, graduate, or non-traditional students aiming to establish a credit history while enjoying rewards tailored to student spending. However, if you’re not a student but still want to build or repair your credit, secured credit cards or other options suited to your credit score tier may be more suitable.
As your credit history strengthens, you may find student credit cards limiting compared to cards offering superior rewards and benefits. Fortunately, many issuers offer pathways for upgrading your card once you’ve transitioned beyond student status.
Potential to outgrow
Undergraduate, graduate, or non-traditional students aiming to establish a credit history and earn rewards for student-centric expenses are ideal candidates for student credit cards.
If you’re not a student but seek to establish or enhance your credit, consider applying for a secured credit card or another suitable option aligned with your current credit score.
As your credit history develops, student credit cards may become limiting, prompting eligibility for cards offering superior rewards and benefits. Fortunately, numerous issuers offer pathways for upgrading your card once student status is no longer applicable.
Applying for a student credit card
Once you’ve assessed your financial situation and determined that a student credit card is the right option for you, follow these five steps to apply:
- Check your credit score. Your credit score guides your card options. Even without a credit score, there are suitable card options available.
- Visit the issuer’s website and locate the application. Identify the card that aligns with your needs, set up any required accounts, and find the application for your chosen card.
- Complete the application. Provide all necessary information, including your name, address, and annual income. Consider including income sources like part-time job earnings, scholarships, grants, and regular allowances.
- Await a decision. You may receive an instant decision or need to wait a few days. If denied, the issuer must send a letter explaining the decision.
- Establish a payment plan. Upon approval, note the card’s payment due date to ensure timely and full payments, avoiding additional interest charges. Your physical card will then arrive by mail.
Age requirements for a student credit card
Legally, individuals must be at least 18 years old to qualify as primary cardholders. However, applicants under 21 face additional income verification requirements.
If you’re under 21, credit card issuers will demand proof of income, but household income cannot be utilized as it can for those aged 21 and above. If you’re 18 or older and lack the necessary income to secure a credit card independently, you may need to apply with a cosigner or explore becoming an authorized user on someone else’s account. Alternatively, you might opt for a secured credit card, which typically has lower income prerequisites.
In Conclusion
Starting with a student credit card can lay a solid foundation for your credit history, facilitating significant life events. Priority should always be given to paying your credit card bill on time and in full. Conduct thorough research to select a card aligned with your individual financial requirements.