Start in college? Here’s why a student credit card is essential
Now is the perfect time to start building a good credit history.
- Student credit cards are a good introduction to credit for students.
- If you get a student credit card and pay the bill on time, it can help you build a high credit score.
The fall semester is starting again, so if you’re in college, it’s probably a busy time for you. Between moving into dorms or an apartment, enrolling in classes, and buying books, there’s a lot to do.
As you prepare for college life, there’s also a smart money move you can make right now. If you don’t have a student credit card yet, it’s worth getting one. By getting a student card and using it wisely, you can get a head start on building your credit score and maybe even get some extra perks in the process.
How Student Credit Cards Work
A student credit card is a type of credit card designed specifically for students. If you know how credit cards work, student cards work the same way.
When you get a student credit card, the card issuer approves you for a credit limit, also called a line of credit. This is the maximum balance you can have on the card. Student cards normally start with low limits, such as $500.
Each month, the card issuer sends you a credit card statement. Your credit card statement will contain:
- Charges you made during this billing cycle
- The statement balance, which is the total amount you owe
- The minimum payment amount required
- The payment due date
Here’s the key to using credit cards successfully — pay the full statement balance each month. When you pay in full, you pay no interest on your purchases. You only pay the actual cost of these purchases.
On the other hand, if you don’t pay in full, that’s when the card issuer may start charging interest. This basically means you pay extra for purchases you haven’t paid for. Some people only make minimum payments, but it takes a long time to pay off your balance and it costs you a lot of interest.
LEARN MORE: How does credit card interest work?
Why should you get a student credit card?
The main reason to get a student credit card is that it can help you build your credit history. Your credit history is what determines your credit score, a number that will have a big impact on your life.
For example, when you apply to rent an apartment, chances are the landlord will do a credit check. If you don’t yet have a credit score, you may need to find a co-signer, such as a relative with a high credit score, for your lease. Or, the landlord might require a larger security deposit.
This is just one example among many others. Your credit score also comes into play when applying for loans, such as car loans and mortgages. In most states, it can even affect how much you pay for car insurance.
If there is no information about your credit history, you will not have a credit score. It’s called being invisible credit, and it’s a problem for many people, especially young adults. No credit score means that lenders and other third parties have nothing to do when they check your credit.
But if you used a student credit card and paid on time, you won’t have this problem. Each time you pay your bill on time, the card issuer flags that payment in your credit history. Each is like a good grade, and over time, that positive activity adds up to a high credit score.
This is an important advantage, but it is far from the only advantage of a student credit card. Here are a few others you should know about:
- A credit card is a safe way to pay for your purchases. Almost all credit cards offer zero fraud liability, meaning you are not responsible for fraudulent charges made with your card.
- Some student credit cards offer rewards, such as cash back, on your purchases.
- Many credit card companies offer free identity protection and credit monitoring to their cardholders. This allows you to stay on top of your credit score and credit file activity.
How to get a student credit card
The first step to getting a student credit card is finding the right one. If you have a bank account with a bank or credit union, check to see if they have student cards available. Some do, and it’s often easier to get approved for a credit card when you’re already a customer of the card issuer.
Otherwise, browse the best student credit cards and choose the one you like. Once you have found a card, you can apply for it online. Credit card applications ask for personal and financial information, including:
- Full name
- Date of Birth
- Physical address
- Phone number
- E-mail address
- Social Security number
- Annual revenue
You will need some form of income to be approved for a credit card. However, it does not have to be employment income. If you receive scholarships or grants, or even an allowance from your parents, you can include this as income on your credit card application.
Credit cards have a mixed reputation in personal finance circles, and it’s true that bad credit habits can land you in debt. But when used responsibly, they are a useful financial tool. Your credit score is extremely important, so it makes sense to start working on it now.
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