If you're looking to get a head start on building your credit to make your post-college life a little easier, you may be in the market for a student credit card. Not only are student credit cards easier to obtain than other cards, they come with figurative "training wheels" that can keep you from getting too deep into debt.
- Student credit cards work exactly like regular credit cards and are accepted at the same places.
- A student credit card can help you build a good credit history and a high credit score over time.
- One downside of student credit cards is that they tend to carry high interest rates, although that won't matter if you pay your bill in full each month.
What Is a Student Credit Card?
A student credit card works just like any other credit card, although it usually carries a lower credit limit. It provides the convenience of a credit card, making it handy in emergencies, while also helping the student build a credit history and a good credit score.
To obtain a student credit card, the applicant must:
- Be at least 18 years old
- Be a U.S. citizen or have a Social Security Number
- Be enrolled either full-time or part-time at a qualifying school
- Have some form of income or have someone to cosign the application
- Not already have bad credit
Student credit cards are generally set up so they can't do too much damage if things go awry. Their relatively low credit limit puts a cap on how much a student can spend on the card and also means it can more easily be repaid. The credit limit is usually determined by the bank or card issuer by examining the applicant's current credit score (if one exists), their monthly income and expenses, and how much debt they already have. That last part may play a big role, as the average amount of student debt at graduation today exceeds $32,000.
The Upsides of Student Credit Cards
A student credit card can be worth having for a number of reasons:
- Builds your credit. When you use a student credit card, the issuer will report your account activity to the major credit bureaus. The credit reports that they compile on you become the basis for determining your credit score. Your credit score is an incredibly important figure that lenders use to judge how financially responsible you are. Many of life's major milestones, like buying a car or getting a mortgage for a new home, become easier with a solid credit score. By paying your credit card bills on time and keeping your credit utilization ratio relatively low, you can build and maintain a good score. But if you fail to make your payments on time and regularly run up massive charges on your account, your credit score will drop. Credit scores typically range from 300 to 850. According to Fair Isaac Corporation, which invented the widely used FICO score, a good one starts at 670.
- Helpful in an emergency. A credit card can be handy for covering expenses like an unexpected car repair.
- May have added perks. Like many credit cards on the market today, student credit cards often come with additional benefits. While regular cards may offer rewards in the form of cash back or travel miles, with a student card you're more likely to get things like a free year of Amazon Prime or discounts at a major book retailer.
- Fosters financial literacy. If you don't have a lot of financial experience yet, having a credit card is a good way to learn how to use debt wisely.
The Downsides of Student Credit Cards
Student credit cards also have some negatives:
- Low credit limits. The typical credit limit on a student credit card is just a couple hundred dollars. On a regular card it might be in the thousands of dollars. While that can keep you from charging too much, it also limits the card's usefulness in a costly emergency. Regular expenses that students face, like books, groceries, and other necessities, can also add up quickly if they're charged to the card, which will drive up your credit utilization ratio.
- High interest rates. Student credit cards have variable interest rates that can be on the high side. Even in today's low interest rate environment, many charge in excess of 20%. That won't make a difference if you pay your credit card bill in full each month, but it can be costly if you don't.
- Extra fees. More often than not, student credit cards carry fees like an annual fee, foreign transaction fees, and late payment fees, among others. By shopping around, however, it's possible to find a card with few or relatively low fees.
- You can still mess up your credit score. Even though you can't run up a huge balance with a student credit card, it's still possible to damage your credit if you miss payments. So plan to pay at least the minimum due each month and ideally your entire balance. Also keep an eye on your credit utilization ratio, so it doesn't get too high and drag down your score.
Shopping for a Student Credit Card
Student credit cards are widely available from the same banks that issue regular credit cards. To help you find one that's a good fit for your needs, Investopedia evaluates student credit cards and publishes a regularly updated list of the best student credit cards on the market.
Note that if you don't qualify for a student credit card, another option is a secured credit card. With a secured credit card, you leave a sum of money on deposit with the card issuer and that becomes your credit line. After you have used your secured card for a while—and made all your monthly payments on time—you may qualify for an unsecured credit card. Like student credit cards, secured cards will report your account activity to the major credit bureaus, allowing you to build a good credit history and respectable credit score. Investopedia also publishes a list of the best secured credit cards.