Your credit report and score play a big role in your financial life, whether you’re borrowing money for a home, a car or seeking a lower interest rate on a credit card. If you’re young and still in school, you probably don’t have enough of a financial history to create a credit report. The Consumer Financial Protection Bureau reported that 26 million U.S. consumers—11% of the adult population—were credit invisible, meaning they had no record with major credit bureaus or their credit history was too limited to score. 

While getting a credit card and making regular payments will help you build your financial reputation, getting approved may be challenging. One avenue college students can take are student cards. 

How are student cards different from regular cards? We’ll explain, and in doing so give you the information you need to find a card that’s right and get you on the road to building solid credit. 

Key Takeaways

  • Twenty-six million U.S. adults—about 11%—don’t have any credit history.
  • One way to build credit is with a student credit card, which provides an opportunity to build credit while in school.
  • Unlike secured credit cards, no security deposit is required.
  • You can earn cash back, airline miles and similar rewards.
  • Get in the habit of paying your balance each month to avoid interest charges.

What Is a Student Credit Card And Why Do I Need One? 

Student credit cards function like standard credit cards. They’re unsecured, so you don’t need collateral or a security deposit. 

The key difference between student credit cards and standard credit cards is their eligibility requirements: student credit cards are designed specifically for those attending college, and applicants without a credit history can qualify for one. Whether you are part-time or full-time, you can get a student credit card issued by a bank or credit union. 

As a college student, you’re more likely to qualify for a student credit card than other forms of credit, such as personal loans or auto loans. With responsible use, a student credit card can be a useful tool as you complete your education, permitting you to pay necessary expenses and build credit simultaneously. 

After you graduate, some credit card issuers allow you to transfer your account to a standard card. If that happens, you’ll likely qualify for a higher credit limit. 

Three reasons to get a student credit card

Build Your Credit

As a college student, you likely haven’t had a chance to build your credit. Your credit history and credit score have significant impacts on your life, affecting everything from getting approved for an apartment to buying a car. 

When you open a student account, you get a line of credit, which essentially is your spending limit.That credit line increases your available credit, which is your credit line minus outstanding balances. If you keep your balances low, you’ll reduce your credit utilization ratio—this is the percentage of a borrower’s total available credit that is currently being utilized, a factor that impacts 30% of your FICO credit score

As you begin using your card and making payments, you build your payment history, which accounts for 35% of your credit score. When you make your payments on time every month, you build a solid credit report. 

Have a Credit Card for Emergencies

You’re driving home and get a flat tire. A family member becomes ill and you need to fly home right away. Whatever the situation, emergency expenses might hit at any time. If you have a credit card, you can quickly cover those costs. Depending on where you live, emergency services—such as towing companies—may require you to pay with plastic, so having a credit card gives you added security. 

Earn Rewards

With a student credit card, you can earn rewards on your purchases. For example, the Discover Student Cash Back card allows you to earn 5% cash back—up to a quarterly maximum—on orders through Amazon.com, grocery stores, meals at restaurants, gas stations, and some PayPal transactions. You can also earn 1% cash back on all other purchases. 

Remember that rewards are an incentive to get you to spend more. Be smart! Use your card only for essential purchases and avoid interest fees and unnecessary debt. 

Risks of a student credit card 

Like all forms of debt, student credit cards have drawbacks. They tend to have high annual percentage rates (APR), so if you spend more than you can afford to pay off by your due date, you’ll be hit with interest charges. Those interest rates typically hover around 20%, so charges build up quickly on unpaid balances.

Possibly the biggest risk is that credit cards make buying stuff so easy, which may lead you to make bad financial decisions and buy stuff you can’t afford. 

To instill financial discipline, make a budget based on your monthly cash flow and expenses. Only use the credit card for necessary purchases, and always pay your balance off in full each month. 

Getting a credit card

If you use a student credit card responsibly, you can establish your credit and get backup financing for emergencies. If you decide to apply for a credit card but aren’t sure where to start, check out our picks for the best student credit cards of 2021