Credit cards are so readily available nowadays that some may consider them a staple for everyday living. Practically everyone from teenagers to the elderly has a credit card of some type. A particularly targeted group is college students.
Credit card companies have changed their marketing strategy over the years, electing to go after young consumers instead of targeting individuals who have already established credit. Credit card companies are usually eager to sign up college students despite nonexistent credit histories because it builds brand loyalty, as they will more than likely become a customer for life.
This form of relatively easy credit can be intriguing for students, but can also put those who are not financially savvy in a scary position. If used responsibly, student credit cards can be used as a building block for better credit. On the other hand, if you get the wrong card, or you use it without proper discretion, a credit card could be the beginning of the end for your credit rating.
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Pros of a Student Credit Card
Student credit cards are designed for those with little to no credit, so they can be a good place to get your foot in the door when it comes to building and establishing credit. This could be beneficial because the earlier you start building your credit, the better it will be. This may also lead to better rates on home and vehicle purchases once you get out of college.
If used wisely, credit cards are not a terrible thing to own. Student credit cards can provide a financial cushion for educational and personal needs when you’re away at college. This makes it nice knowing you won't have to worry about needing cash in an emergency situation. They give students the ability to purchase supplies, textbooks, food, and anything else they may need while away from home. Knowing that you have the means to pay for what you need in school is one of the major advantages of having a credit card in college.
Cons of a Student Credit Card
While student credit cards can be useful to have to help pay for textbooks and other costs that arise, they can also become your own worst enemy.
Potential for Abuse
Many college students do not fully understand the workings of a credit card. Having money on hand is great at that particular moment, but things can add up quickly if you aren't keeping track. When you are hit with the bill, it can be eye-opening how much you can actually spend in a short period of time. If this happens, and you can’t make the payment, the credit card company will report you as being delinquent. This will show up on your credit history and make it more difficult to receive credit once you have finished college and are ready to begin your adult life.
Why get a student credit card?
Build and Establish Credit
Establishing credit can be a very difficult task at a young age—you need to start somewhere. It's important to start getting your credit score up as early as possible. Without a decent credit score it is difficult to get a car, house, or any other expensive item you wish to purchase on credit. With established credit history, your chances of being approved for a loan are much higher and you will receive better terms.
Financial Emergencies
Credit cards make sense to use as a fallback plan in case you do not have the cash needed and emergency situations arise. For example, you are about to start a new semester and don’t have the cash to pay for textbooks. Not having the textbook could lead you to fall behind on your studies but if you have a credit card, you could avoid the hassle and simply purchase the book on credit.
How to Choose the Right Student Credit Card
As a college student, there is no reason to go overboard when picking out your first credit card. Sure, a $5,000 credit line might sound nice, but why would you ever need that much? Having that much credit when you are just starting out is a recipe for disaster. Instead of going for the most over-the-top offer out there, find something manageable and you can build from there.
Most companies offer student credit cards that are available to nearly every student, even if you don’t have any credit history. If you have a job and are making consistent income, you might qualify for a regular credit card which usually has better interest rates and terms. Finding a card may be made easier by searching online for special offers and comparing the requirements that are needed for each. Always aim for a credit card with the lowest annual percentage rate and look for ones that have no annual fees. There are some student credit cards out there that have some really decent rewards programs such as airline miles, special discounts, and even cash back, so look around and see what you can find.
One of the more popular ways to establish credit is to go to your local bank branch and have your parents cosign on a credit card. Usually the limits on these are fairly low ($300-$1000) due to not having any history. This is fine, as it is important to not have a large limit for your first card.
For the most part, student credit cards with their low limits will probably not make or break your finances. The key is to check the rates that are offered, choose the lowest possible rate, and ensure that you are responsible enough not to go on a spending spree and potentially run up a bill that will take years to pay off.
Tips when Applying for a Student Credit Card
Stick to a Small Credit Line
If you decide that a credit card is right for you, start out with a small limit until you get yourself into a habit of using the card and making payments. This will keep your spending in check and will reduce the risk of falling into credit card debt, but still provide enough to buy things you may need as they come up.
The most important guideline to remember here is to be responsible with the card. Don't just buy stuff because you have a credit line. Only purchase what you know you can pay off. It is also important that you don't get in a habit of using the card for several small purchases such as fast food, movies, coffee, etc. Those small purchases can add up quickly.
Read the Fine Print
Not all credit cards are created equally. Make sure you take the time to read the small print and figure out the different terms associated with each card. For instance, how long is the grace period? Does the card feature an introductory rate that will change over time? What happens if a payment is late? These are all questions that have very important answers, so it is in your best interest to know every detail of the card before applying.
Stay away from multiple Credit Cards
Even if you are financially responsible, having too many cards can make it difficult for you to gain other types of credit. Multiple cards can also easily lead to credit card abuse. Start with a single card to use to build and establish your credit.
Pay it off on Time
Once you get a credit card, remember that paying the full amount due every month will eliminate the interest accrued for the month and will act like a 30-day interest free loan on any purchase. If you choose to do this, make sure you have the cash at the end of the month to pay off the card completely. This is a good strategy to build a solid credit history.
Student credit cards can be a blessing or a curse depending on what you do with them. Never get ahead of yourself with spending and don’t max out your credit cards. Make your choice carefully and when you get your hands on a card, use it responsibly. As long as you learn how to budget your spending you will have a great resource to use for years to come.