How To Use A Student Credit Card The Right Way
Andrew Dehan4-minute read
April 22, 2021
Are you a college student looking to build a secure financial future? Believe it or not, student credit cards can be a great way to help build your credit. Having a strong credit history can help you with other aspects of your financial life like renting an apartment or buying a car. It can even affect your next job application.
These pieces of plastic are designed for people who have limited credit history or a lower credit score and are looking for their first credit card. In fact, many issuers have gotten on the bandwagon, meaning there are plenty to choose from.
Before getting one, make sure you understand how a credit card works, how it can help you build credit and what to watch out for.
What Is A Student Credit Card?
A student credit card is designed for those who have limited, average or even no credit history since the applicant is most likely applying for a credit card for the first time. In most cases, the applicant will need to be at least 18 years old, an enrolled college student – many issuers make it a requirement on their applications – and have a certain amount of income.
In the past, student credit cards didn’t offer much more than the opportunity to build credit. In recent years that’s changed – you’ll see many issuers offering rewards programs or bonuses geared toward a college student’s lifestyle. On the flip side, you’ll also find that there are lower credit lines and higher interest rates and penalty fees compared to “regular” credit cards.
How Does A Student Credit Card Build Credit?
Student credit cards help build credit because issuers will report your payment activity to the three major credit bureaus – Experian™, Equifax® and TransUnion®. These credit bureaus will keep a record of the type of credit accounts and loans you have and whether you’re a responsible borrower.
In other words, getting a credit card now will show prospective lenders that you’re capable of handling debt. It could mean you’ll increase your chances of qualifying for a car loan or mortgage in the future, as well as get a better interest rate.
All that being said, you’ll need to be a responsible cardholder in order to build a positive credit history.
Best Practices For Using A Student Credit Card
A student credit card should be used smartly for the purpose of building credit and learning to manage your money. Just like how you want to start your freshman year with good intent and good grades, you want your first year with a credit card to set up the good habits to build your credit.
Read on to learn some of the best practices for using a student credit card.
Don’t Spend More Than You Can Afford
Remember, you need to pay the balance back eventually, so overextending yourself could mean paying credit card interest or struggling with payments. Credit card companies know they're taking a risk on someone with limited credit history, so these cards tend to come with high interest rates, especially after the intro APR period.
Ideally, you would pay off your balance every billing cycle. If you just pay the minimum payment, you'll be paying back a lot in interest. Just paying the minimum payment while continuing to use the card can land you in a lot of credit card debt.
Also, be aware that if you make a purchase that's "interest free" for a period, if you don't pay off the balance within that period, you will be charged the full amount of interest once that period is over. That means if your card offers you 6 months interest-free, and it's been 6 months and you haven't paid it off, you could get a large interest charge on your account.
Consider A Co-signer Or Becoming An Authorized User
If you're having trouble getting a credit card due to having no credit history, you could consider getting a co-signer on your card or becoming an authorized user on another person's card.
A co-signer will need to have excellent credit history. This is someone who can vouch for you. Many people are uneasy being co-signers because, if you don’t pay the bill, their name and credit is on the line. Close family members or friends who trust you may be willing to do it.
The other option is to become an authorized user on someone else’s card. This will not build credit as fast as having your own credit card. But it gives the account holder more control and may be easier to get someone to agree to than co-signing.
Budgeting makes your money work for you. You lay out your expenses, prioritize them and compare them to your income. Budgeting helps you get ahold of managing your money and cuts down on needless impulse purchases.
You can take advantage of credit card cash back perks by budgeting the money you’ll spend at the grocery store and gas station, then using your credit card for these purposes. Using your debit card for everyday purchases and your credit card for big purchases is another strategy for taking advantage of certain perks, such as travel rewards.
Keep Your Credit Utilization Low
Credit utilization is the ratio between your credit limit and credit card balance. Most experts recommend keeping it to 30% or below. This means that you need to leave at least 70% headroom between your balance and your credit limit. For example, if you have a card with a $1,000 credit limit, do your best to keep the balance below $300.
Pay Off Your Balance Each Month
If you pay off your balance every billing cycle, you don’t have to worry about compounding interest and growing credit card debt. Paying off your balance every month helps you build good credit history without amassing credit card debt. Keep an eye on your credit card account to be sure you don't overspend. Carrying a balance month-to-month will only mean you pay more interest.
Carefully Consider Cash Advances
Taking out cash using your credit card means you’ll be charged interest as soon as those dollar bills land on your hand. Plus, those rates tend to be much higher than on regular purchases. If it's absolutely essential that you take out the cash advance, be prepared to pay it back with interest.
What’s The Difference Between A Student Credit Card And A Secured Credit Card?
Both student and secured credit cards tend to have low credit limits. A student credit card is geared toward full-time students – as mentioned before, many issuers will ask for your educational status in the application form. They may require you use a .edu email address or supply your student ID. Student credit cards can be unsecured, meaning you don’t need to put down a deposit to use them.
A secured credit card, on the other hand, is for people who aren’t students who have no credit history or limited credit history. It’s also for anyone who has bad credit looking to bounce back and rebuild it. These types of cards require collateral – a security deposit – which tends to be the equivalent to your credit limit.
What Are Some Of The Best Student Credit Cards?
There are many popular student credit cards with different perks. Before signing up for one, it’s crucial to do your own research to see what’s best for you.
Here are some of the best student credit cards according to U.S. News and World Report, along with the perks they offer:
- Discover it® Student Cash Back: Earn up to 5% cash back with no annual fee at grocery stores, gas stations, when you use PayPal and on Amazon.com; $20 statement credit for good grades (3.0 gpa or higher for a year); no late fee on first late payment
- Bank of America® Cash Rewards Credit Card for Students: Earn 3% cash back on a category you choose with no annual fee; easy-to-use online banking and monthly updated FICO® Score reports
- Journey® Student Rewards from Capital One®: Earn a cashback bonus for paying your balance on time; pick the billing due date that works best for you; $0 fraud liability if the card is stolen or lost; no foreign transaction fees
- Wells Fargo Cash Back College Card: Low intro APR; no annual fee; 3% cash rewards at gas stations, grocery stores and drugstores in the first 6 months; 1% cash rewards on every purchase
How To Apply For A Student Credit Card
Before filling out a credit card application, you might be able to see what you qualify for. That means you’ll be able to check your options without affecting your credit score (if you have one). Once you’re ready to apply, you’ll need to provide details such as your name, address, Social Security number, where you attend college and proof of income. It’s as simple as that.
If you're receiving credit card offers, choose the one you want to accept. Too many credit card applications on your credit report can negatively impact your credit score.
The Bottom Line
Once approved, don’t forget to sign up for credit monitoring so you can keep track of how you’re doing. Some credit card issuers already provide this service for free, but companies like Rocket Homes® also provide free accounts.
Check out our credit cards 101 article on the Rocket HQSM Learning Center for more on how to build and maintain solid credit.
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