Personal finance | October 12, 2022 | Rob Zodda
It’s no secret that your college years can be financially challenging. But it’s also a period in many students’ lives when they have relatively few day-to-day expenses, which can make it a great time to start building credit responsibly with a student credit card.
A student credit card is just what it sounds like—a credit card that offers specific benefits and features that make it especially useful for students. Used wisely, a student credit card can help you build credit, establish good lifelong financial habits, and maybe even earn some cash back.
The biggest difference between student credit cards and regular credit cards is the application criteria. Banks and credit card companies know that younger people, like college students, probably haven’t had as much time to build their own credit. In other words, they haven’t had as many opportunities to show that they can borrow money and pay it back, on time, with interest. That’s why student credit cards have different credit requirements, which make them a good option for students with limited or no credit history.
Wondering how to choose a student credit card? There are quite a few options out there, so be sure to compare them all and see which one works best for you. Here are a few things to consider:
Some credit cards have an annual fee—a price you pay once a year to enjoy all the benefits that credit card has to offer. If you’re new to building credit and looking for a student credit card, make sure you choose a card with a $0 annual fee. There’s no reason for students to pay any more than they have to.
An annual percentage rate (APR) is the annual rate charged for borrowed money (which is basically what a credit card is). Credit card companies are legally required to disclose a credit card’s APR before you become a cardholder. APR is usually expressed as a range of two rates, from the lowest end to the highest end. Where you land in that range will depend on your credit history and other factors. In this case, the lower the APR, the better.
Some student credit cards even come with special offers, like 0% introductory APR on purchases for 6 months, for example. That means you’ll have six months before any interest is added on to any purchases you’ve made.
Tip: Even with a 0% introductory offer, the best thing you can do is to get in the habit of paying your credit card bill in full every single month. There’s a persistent myth about credit—some people think you need to carry a balance month to month to build your credit. That is FALSE! Leaving a balance doesn’t help you build credit; it just costs you more in interest.
Just because you’re using a student credit card doesn’t mean you need to miss out on cash back or other rewards. Look for rewards that promote good financial habits, rather than just frequent credit card use.
Make sure you know what your credit card offers in terms of security. You want to find a credit card that does not hold you responsible for unauthorized charges. In other words, you won’t be responsible if your card gets stolen and the thief goes on a spending spree. Many cards also allow you to freeze your account any time, online or from a mobile app.
Tip: Another reason to consider a student credit card is that they’re more secure than debit cards. With a credit card, you’re generally not responsible for unauthorized charges. With a debit card, someone has direct access to your bank account, and there’s no way to retrieve any funds that go missing.
Once you think you’ve found the right student credit card for you, you have to apply through a bank or credit card company’s website.
You’ll be asked to provide some basic information about yourself, like your address and Social Security number, as well as basic financial information about any income or debt you have. Some credit cards allow you to apply with a cosigner. A cosigner is someone with good credit who agrees to be equally responsible for repaying credit card debt, if you (the cardholder) don’t.
Think about it from the point of view of the bank or credit card company. Most students haven’t had enough time to prove they can use credit responsibly, so a cosigner is a little bit like a safety net. Cosigners are often parents, but they don’t have to be. Guardians, aunts and uncles, friends, and even spouses can be cosigners—as long they meet the credit and income requirements. If someone agrees to be a cosigner for you, they’re proving that they have faith in your ability to use a credit card wisely and always pay your bill on time.
Note: Being a cosigner means more than just adding your name to an application—it’s a legal agreement. If the cardholder is behind on payments, it will affect the cosigner’s credit score too.
Generally, most credit card companies require cardholders to be at least 18 years old. Even if you’re 18 years old, you still might not meet the income and credit requirements for a student credit card. That’s when you would need to apply with a cosigner.
Do you have friends who seem like they’ve been using a credit card for years? They might be authorized users on a family member’s account—meaning the student has their own physical card and they can make purchases, but they are not the primary account holder and they’re not legally responsible for paying the balances they incur.
Usually, with authorized user programs, the bank which issues the credit card reports the account to the credit bureau reporting agencies, which helps the authorized user establish credit. Being an authorized user can be useful in building credit as long as the primary cardholder makes payments on time and is responsible for the account.
Generally, age restrictions for authorized users tend be a little lower.
Credit is a fact of life. After college, you’ll need good credit for all the big things ahead, like a car loan or your first apartment. Using a student credit card responsibly is a great way to start building credit and learn some important lessons about credit cards. Here are three tips for how to manage your first credit card.
Spending below your credit limit is an important part of building credit. Start by using your credit card for relatively small and predictable purchases, like a streaming subscription. That way you can get used to seeing when those charges post to your account and paying your bill in full each month.
There are some things financial experts don’t recommend using credit cards for—like anything that will take a long time to repay. One example is college tuition. A credit card can be great for day-to-day expenses while you’re in college, but not for tuition itself. If you need help paying for college, a student loan is a better option because student loan interest rates are generally much lower than credit card interest rates.
Mobile banking apps are helpful when it comes to using your credit card responsibly and staying on track. Apps make it super easy to keep track of your purchases, pay your credit card bill, check your FICO® Score, and more. Once you have a student credit card, download the app that goes with it.
Credit is a powerful tool and an important part of your financial future—it’s not something to fear. Like any other aspect of your life, your credit will require a little attention now and then to stay in tip-top shape. But it’s perfectly fine to start small, learn, and build your credit over time.