A student credit card can be perplexing. In some instances, you don’t have to be a student to apply for one. And in most cases, being a student doesn’t automatically qualify you for one.
Student credit cards are designed for people ages 18 to 21 who have limited or no credit history. Understanding how these cards work will help you choose one that’s best for you.
Are you eligible?
Before the Credit Card Act of 2009, college students were bombarded with T-shirts, beach towels and other trinkets to entice them to sign up for a credit card when they set foot on campus. The Card Act put the kibosh on that. Now, credit card issuers can’t market within 1,000 feet of campus, and applicants younger than 21 must prove their income or have a co-signer, such as a parent, on a credit card application. Many issuers don’t allow co-signers on credit card applications, but some do.
For proof of income, credit card issuers might consider money you’ve earned from a part-time or full-time job, or money that is regularly deposited into your account by another person.
Is a student credit card right for you?
A primary reason you might want a student credit card is to begin building your credit history. Companies that issue student credit cards expect that applicants will have little or no credit history and an average credit score. That means the annual percentage rate will be high, probably more than 20%. Companies need to manage their risk, and the lower your credit score, the greater risk you are to them.
You also will likely get a low credit limit, probably around $300. In this way, lenders limit their risk if you default on your credit card bill.
Paying your bill on time each month — preferably in full to avoid interest — can help you establish good credit and demonstrate to lenders that you can manage money responsibly.
What to look for
Here are some factors to consider when you’re comparing student credit cards:
No annual fee. A cardholder might pay an annual fee for a card that earns rewards or offers other perks. Despite a few exceptions, most student credit cards don’t offer rewards. Likewise, a good student credit card won’t have an annual fee.
No foreign transaction fee. Some credit cards charge this fee — usually 3% of the transaction — on purchases made in a foreign currency. So if you plan to study abroad or travel internationally, you’ll want to consider cards that don’t charge this pesky fee.
Credit-monitoring tools. Many credit card companies offer free credit scores and monitoring. (Even if you don’t have a credit card, you can get your free score and monitor your credit habits at NerdWallet.) Take advantage of this feature, since it will help you track your progress toward a good credit score and let you see areas for potential improvement.
Bonuses or incentives. Some student credit cards may offer cash bonuses for good grades. Others may reward you with a higher credit line once you’ve made several on-time payments.
Alternatives to student credit cards
If you’re not eligible for a student credit card, see whether you can become an authorized user on a parent’s card. You will get the benefit of the primary cardholder’s credit history, but you aren’t legally liable for paying the bill.
Another possibility is a secured credit card, which allows you to make a security deposit that becomes your line of credit. After you’ve shown you can manage credit responsibly, the card issuer may upgrade you to an unsecured card and return your deposit. In the meantime, you’re building your credit history.
Whether you apply for a student credit card or go another route, establishing credit and managing it well will set you up for a responsible financial life.
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