Last updated on July 30th, 2020
Learn the basics of this popular credit card type to maximize your rewards all semester long.
If the coins you’re finding in the cushions of your dorm couch can’t cover the increasing cost of everything on campus, it may be time to look into student credit cards. Student cards can be useful tools to help you pay for expenses while you’re far from home and are a great way to begin building your credit score in preparation for the big purchases in your future.
Student Credit Cards at a Glance
Student credit cards are financial tools that are marketed to students. Some student credit cards may include a rewards program that gives you cash back for purchases made at gas stations, grocery stores, and restaurants, while others offer modest cash back rewards or points for all purchases made, or none at all. Many student credit cards do offer debt forgiveness programs if you forget to pay on time, as well as credits on your statement if you do well in school, such as when your GPA is 3.0 or higher, for example. If you’re able to establish responsible financial habits now while using student credit cards (including paying your monthly statements off on time), it’s likely that you’ll be approved for a rewards card with a better interest rate and benefits the next time you apply.
Student credit cards often feature higher annual percentage rates and lower initial credit limits, as students commonly have a limited credit history and are considered by banks to be risky. The APRs for these cards tend to start in the upper teens and can reach as high as the upper twenties range. The credit needed to be approved for a student credit card varies as well but generally ranges from “good” to “poor” while select cards require no credit rating at all.
More often than not, student credit cards do not charge an annual fee. That said, from the time you activate your credit card, you’ll want to pay off your purchases automatically in order to avoid paying high-interest rates and eventually going into default. Not paying your monthly statement can cause your loan to be considered delinquent, and defaulting can cause serious damage to your credit history that will show up on credit reports for years to come. Just because you have a credit card in your wallet doesn’t mean that you now have the power to buy everything and treating the tool as such will likely result in quickly accumulating fees.
What to Look for in a Student Credit Card
Not all student credit cards make the grade. Look out for these popular benefits and features listed below when shopping around for a new card.
Rewards Programs: Many student credit cards feature relatively minimal benefits when compared to general rewards credit cards, but that’s not always the case. Shopping around will show you that there are indeed credit cards with rewards programs that match all the cash you spend dollar for dollar, as well as some with a generous earning rate of 3 or even 5 points per dollar spent. As with all credit cards, pay attention to the qualifying categories that reward points for purchases, particularly if they rotate each quarter. Ideally, you’ll want a student credit card that rewards you for buying things you’re already regularly spending your money on, such as gas, groceries, and the occasional entertainment expense for concert tickets and the like.
Debt Forgiveness: When learning how to use credit cards and navigate debt, especially at a young age, it’s important to look for a card that offers debt forgiveness. If you’re striving to be financially independent and free of your family’s safety net, you will want a card with debt forgiveness to prevent your credit score from being negatively affected. Between school, work, and your social life, you may forget or be unable to pay the minimum amount due on your card each month (if you’re not paying the balance off completely). Spending within your means can help in this regard, but just in case, it’s comforting to know that you have at least one opportunity to keep your slate clean with debt forgiveness.
No Annual Fee: Generally speaking, signing up for a credit card without an annual fee makes financial sense. This rule doesn’t apply, though, if the benefits that you earn while using the credit card are greater than the fee you’re paying each year. One such example would be a travel card that waives baggage fees, offers priority boarding for flights, and grants access to luxury airport lounges while charging the equivalent price of a single checked bag each year for membership. In order to appeal to people with a limited budget, i.e. students, many issuers offer student credit cards that do not charge an annual fee. You’ll want to look out for those cards and compare their benefits before making your selection.
Tracking & Tools: It’s important to select a student credit card that grants you the ability to conveniently check your balance online at any time, as you can spot potential fraudulent charges before others are made on your account. 24/7 tracking is also useful when budgeting yourself to ensure that you are able to pay off your debts each month and keep your credit score as spotless as possible. Nowadays, many financial institutions offer online banking in the form of apps that can be accessed on your smartphone or tablet, making it easier than ever for you to keep track of your balance anywhere you are.
Academic Incentives: A perk unique to student credit cards, some offer cardholders account statement credits if their grades meet a certain threshold. That means that with the right credit card in your wallet, you may be entitled to a credit on your balance simply for keeping your grade point average above 3.0, for example. This isn’t always the case, so finding a student credit card that offers a financial reward for being a good student on top of all the cash back you’ve earned is key.
Fraud Protection: Credit card fraud can occur anywhere at any time, whether making a purchase on campus at a vending machine or paying for parking when you head downtown. If you shop online with your credit card using your smartphone, a site that has been hacked can also prove to be a problem for your identity and account. Making purchases with a student credit card that offers fraud protection keeps you free of the financial burden you’ll otherwise be responsible for if your card gets lost or stolen. This is an integral feature that you should look into when signing up for student credit cards and any credit card in general.
When to Sign Up for a Student Credit Card, and When to Choose a Different Course
If you’re in school and have a source of income, but do not have an extensive credit history, student credit cards might be your best option. Not only are you more likely to qualify for a student credit card if you fall under these categories, but you’ll also be able to get the ball rolling on building up your credit score. Proving your creditworthiness through responsible use of a student credit card makes it easier to qualify for big-ticket purchases, such as when shopping for a vehicle or real estate down the line.
You should look out for student credit cards that grant cash back or points for purchases in categories you’re already accustomed to spending in, such as when you shop in bulk at your local wholesale club, as well as those with debt forgiveness and no annual fee. Making it out on your own isn’t easy at first, but with the right student credit card in hand, you’ll graduate to bigger and better cards in no time.