Secured vs. Student Credit Cards: Which to Choose

If you're a student, obtaining a conventional credit card can be difficult, since you probably have little or no credit history for card issuers to judge you by. In that case, a student credit card or a secured credit card could be the answer. Either type will provide you with the convenience of a credit card while also helping you build a good credit history and solid credit score. Here's how to decide which card is right for you.

What Is a Student Credit Card?

Student credit cards are offered by many major credit card issuers. Most require you to be at least 18 years old and currently enrolled full-time or part-time in a qualifying school. You'll also need to show evidence of regular income or else have someone, such as a parent, cosign your application for you. If you meet those requirements, you should find a student credit card relatively easy to obtain.

Like other kinds of credit cards, student credit cards have their pros and cons:

Benefits of Student Credit Cards

• Early credit building. When you use a student credit card and pay your credit card bill each month, many card issuers will report your payments to the three major credit bureaus. That way you'll gradually build a credit history and credit score. After college, many of life's milestones, such as getting a mortgage for your first home, could hinge on your credit score. Your credit score can also make a difference in your insurance rates, whether a landlord will rent you an apartment, and even whether an employer will hire you. By starting with a student credit card, you can get your credit history off to a good start.
• Teaches financial skills. If you aren't already adept at planning and budgeting, a student credit card can help you keep track of your monthly spending and get in the habit of paying your bills on time. Plus, student credit cards come with deliberately low credit limits, so you have some protection against getting in too deep.
• Useful in emergencies. Accidents happen. If you're away at school and something unexpected (and costly) takes place, a student credit card can serve as a safety net.
• Added perks. Like regular credit cards cards, some student credit cards come with rewards, such as cash back or discounts with certain retailers, including your school's bookstore in some cases.

Drawbacks of Student Credit Cards

• High interest rates. Student credit cards typically have higher interest rates than conventional credit cards because students, rightly or wrongly, are perceived as greater risks. The annual percentage rate (APR) on many student cards can easily exceed 20%. For instance, the Journey Student Credit Card from Capital One has a 26.99% variable APR. Of course, the interest rate shouldn't matter if you pay your balance in full every month.
• Low credit limit. Student credit cards usually provide only a few hundred dollars as their initial credit limit. While that can help deter overspending, it may also be inadequate in the case of an expensive emergency, such as a major car repair.
• Extra fees. Many student cards charge extra fees, such as an annual fee, foreign transaction fees (for using your card outside the U.S.), and late fees—though you should do everything in your power to avoid that last one.

What Is a Secured Credit Card?

A secured credit card is another option for students with little or no credit history. It can also be an option for people with a poor credit history.

With a secured card, you deposit money with a bank, which then serves as collateral. The credit limit on your secured card may be equal to, or somewhat less than, the money you leave on deposit. Typically, deposits start at around $200. If you later close the account, you can get your deposit back.

Benefits of Secured Credit Cards

• Builds (and repairs) credit. This is by far the most important benefit of a secured credit card. Like student credit cards, secured cards typically report your account activity to the major credit bureaus. So, as long as you pay your bills on time, you should be able to establish a strong credit history and build a solid credit score.
• Can trade up to an unsecured card. In some cases, secured card issuers will review your account periodically to see how you're handling your card. If you've made consistent, on-time payments, they may upgrade you to a regular, unsecured card. Or, you can apply for a regular card with another issuer, using your current credit history as evidence of your creditworthiness.
• Added benefits. Some secured cards come with potentially useful benefits, such as like credit fraud alerts and free credit monitoring services. Unlike student credit cards, however, perks like cash back and travel miles are not very common for this kind of card.

Drawbacks of Secured Credit Cards

• The security deposit. The biggest reason you're likely to be approved for a secured credit card is also the biggest reason you might be skittish about getting one in the first place. If you're a cash-poor college student, even a few hundred dollars could seem like a lot of money to tie up.
• Extra fees. Some secured card issuers pile on additional fees, such as annual account fees and even a fee for applying.
• High interest rates. Secured credit cards tend to have APRs of 20% or more. Again, this should not be an issue if you pay your outstanding balance in full each month.

The Bottom Line

Either a student credit card or a secured credit card can be a good way for students to build a credit history for the future. You might start by applying for a student card, since it doesn't require a deposit. If you're turned down for a student credit card, a secured card can be a good alternative.