How to choose a student credit card
By Jennifer Nelson
August 12, 2016
As you head to campus, how you’ll pay for all your textbooks, pizza, gas and more may have you shopping the student card lot. However, you’re bound to have questions galore:
Why might you need a student card? What are student cards, and how are they different from regular credit cards? And what should you look for when scouting for a student card?
Let’s tackle these and a few other questions one by one…
How are student cards different from regular credit cards?
If you’re a college student, you likely have a thin credit file and may have little or no income. Student credit cards are designed to take this into account and often are easier to qualify for than a regular credit card.
For example, a student card might have a lower credit limit. They may also offer bonus rewards ($20 cash back for good grades with Discover) or free credit scores and score trackers to encourage good credit practices.
Why might you need a student card?
As a student, you will have new expenses — and hefty ones. Books, trips back home for the holidays or unexpected events such as a flat tire when you’re away from home can set you back big time. Having a credit card can help you cover some of these expenses and allow you to pay them down little by little.
Additionally, though you may have little credit when you first apply, good repayment behavior will help you build credit.
Building credit now will help you get the keys to an apartment, a home or a car down the line. Some employers also may factor your credit into the hiring decision (they have to ask to pull your file first, though). And good credit will get you the best interest rates and loan terms long after you’ve left college behind.
“In short, it’s considerably harder today to get a credit card as a college student than it was a few years ago.”
— Lee Gimpel,
of The Good Credit Game
Is it harder for a student to get a credit card now?
Yes, if you’re under 21, it’s a lot more difficult to get a credit card now than it was for past students. Before 2010, college campuses nationwide held “credit card days,” when card companies and banks gave away goodies to students signing up for credit cards.
The CARD Act made credit cards more of a controlled substance, though. Anyone under 21 seeking a credit card to have an adult co-signer or show they have enough income to repay credit card debt.
“In short, it’s considerably harder today to get a credit card as a college student than it was a few years ago,” says Lee Gimpel, co-developer of The Good Credit Game, a curriculum kit for financial educators who teach classes about credit.
The statistics for college-age cardholders reflect this shift. Just 23 percent of college students have a credit card in their own name, a study by Student Monitor found. That’s down from 46 percent in 2005. Of those students who didn’t have a credit card in their name in 2015, 38 percent had a debit card.
How much do college students know about credit?
Statistics show college students aren’t that savvy about their credit and finances.
For example, more than half (51 percent) of college students in 2015 said they had never viewed their credit report, according to a 2015 study by Sallie Mae and Ipsos, “Majoring in Money: How American College Students Manage Their Finances.”
Furthermore, the same study found that less than one-third of college students could successfully answer questions on credit basics. Students with more credit experience were not more likely to answer the questions correctly.
Nahum Daniels, a certified financial planner based in Stamford, Connecticut, says, “One thing that makes credit cards potentially dangerous for students is that money management is not typically a subject kids are taught in school or usually included on state-mandated tests.”
That’s worrisome since a recent study shows that nearly 70 percent of Americans destroy their credit before the age 30, Daniels says. “What I mean by that is, they have made at least one major financial mistake, or ‘credit fumble.’”
What can be done to increase credit literacy?
Parents should sit down with their college-age kids and have a long and ongoing conversation about credit cards, financial experts say. This includes covering interest rates, credit scores, late payments and the ins and outs of having a credit card.
Parents also should set some ground rules on the use of credit cards. One of those credit card basics is that you shouldn’t charge more than you will be able to pay off when the bill arrives.
How many cards should students have?
One. Maybe. There’s simply no point in students having more, financial experts say. One thing to watch for? With one card — especially a student card with a low credit limit — it’s easy to max out the card.
When you’ve charged all you can on your card, you’re at 100 percent credit utilization and you’re dragging down your credit score instead of building it up. Why? Your credit utilization ratio — the amount you’ve charged compared to your credit line — is a key factor in your credit score.
“One thing that makes credit cards potentially dangerous for students is that money management is not typically a subject kids are taught in school.”
— Nahum Daniels,
a certified financial planner
Gimpel says it’s best to use only a third of your available credit because the algorithm for credit scoring penalizes your score if your credit utilization ratio goes above that. “So if you get a card with a $1000 limit, try to only use $300 of that,” he says.
How do you select the right student card?
“When you’re choosing that first credit card, study the fine print before you sign up,” says Daniels. “Look for a low interest rate, an extended grace period, low penalty fees and a card with no annual fee.”
A student card that offers a mobile app to keep track of spending and make payments should also be a high priority.
Bottom line: Comparison shop. Do your homework.
Here’s a closer look at three of dozens of student cards that are available:
- The Citi ThankYou Preferred Card for College Students offer a rare 0 percent introductory APR for purchases for seven months. It also offers 2 reward points for every dollar spent on dining at restaurants and entertainment. The card also has no annual fee and a sign-up bonus of 2,500 bonus points after spending $500 in the first three months.
- The Discover it Student Card has no annual fee, and cardholders get a $20 cashback bonus each school year if your grade-point average is 3.0 or higher for up to the next five years. Cardholders earn 5 percent bonus cash back in categories that change each quarter (up to $1,500 in combined category purchases each quarter) and 1 percent cash back on all other purchases. And at the end of your first year, Discover will match all the cash back earned on your student card. Discover’s free Credit Scorecard with FICO score also can help students track their credit scores.
- The Journey Student Rewards from Capital One has no annual fee and offers 1 percent cash back on all purchases. Pay your bill on time, and the cash back is boosted to 1.25 percent for that month, encouraging responsible use of credit. New cardholders also get access to a higher credit line after making the first five monthly payments on time. The Journey card also has no foreign transaction fees, which means you won’t pay a transaction fee on purchases when traveling or studying abroad. Finally, with Capital One’s CreditWise, cardholders get free VantageScores and credit-tracking tools.
If a student card isn’t right for you, maybe a secured card is a better option. Or maybe mom or dad will add you as an authorized user on their credit card. Whatever the case, pick a card that best fits your needs and spending lifestyle. And whatever you do, always charge with care.
And when you get your new student card, “it’s tempting to go on a spending spree,” Daniels says. “But students should never buy more than they can pay back right away.”