What are the Benefits of a Student Credit Card?
Key points about: student credit card benefits
Student credit cards can help students build a credit history.
Some student credit cards offer cash back, or other rewards.
Student cards may offer perks, like no annual fee.
A student credit card is a fully functioning credit card geared to students who are new to credit. A student card offers a great way to move into the world of financial independence.
The benefits of a student credit card can include financial education and resources that are available online, via an app, or by phone; support in developing good payment habits thanks to alerts and reminders from your credit card issuer; and cash back or other rewards that are specifically geared toward students. Perhaps most importantly, student cards may have lower credit limits, between $500-$1500 according to Brigham Young University, that can help them to start building credit history. It all depends on the student card you get!
Here’s what students, parents, and recent graduates might want to know when considering student credit cards:
What is a student credit card?
Student credit cards are specifically designed for college students with limited credit history. The best student credit cards may have no annual fee and offer cardholder benefits and perks such as a rewards program.
To get a student card, you may need to submit proof of full or part-time schooling, you typically need to be at least 18 years old with proof of income or assets, and meet any other criteria that the issuer needs to evaluate your application, according to Experian®.
Student credit card benefits
There are a few different benefits of student credit cards that could be good for your financial future.
Student cards could help you build a credit history
A student credit card can help you build your credit history if used responsibly. With a good credit score, you may be a more attractive applicant for a lease for a place to live, and it can even affect your access to cell phone plans. If you apply for a mortgage or car loan, the lender may check your creditworthiness to assure that you’re likely to make on time minimum monthly payments.Plus, you stand to save on interest payments if your interest rate is lower due to your good credit.
To start, make small purchases and be sure to pay your balance in full every month. By doing so, you avoid paying hefty interest charges and late fees, and you also develop positive financial habits so you may be able to build a healthy credit score.
Another benefit of a student credit card is that the seemingly small habits you start today when you use your student card can add up to big results over time, including helping you build out your credit history.
Why is that important? For starters, having good credit could help you get the best terms and interest rates on any loans you may apply for down the road. It can also open doors for you (literally) when you’re looking for a place to live, whether you’re applying to rent an apartment or for a home mortgage. That’s something your future self will thank you for. Starting a credit history in college might benefit you in the future — but, just like toning muscles or learning to play an instrument, building a solid credit history takes time and consistency.
Did you know
Using a student credit card allows you the chance to create responsible bill-paying habits, like with the Discover It® Student Cash Back Card, you can build your credit with responsible use.1 With a student credit card, college students may begin to understand the concept of a credit limit, how much available credit they have at a given time, and learn how to avoid going over the credit limit.
Student credit cards may offer rewards
Credit card issuers offer a variety of student credit card options. For example, the Discover It® Student Cash Back card lets you earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, and gas stations, up to the quarterly maximum when you activate.2
How to choose a student credit card
Choose one card that works for your situation and avoid signing up for additional lines of credit at every retailer you shop at. Signing up for multiple credit cards in a short period of time may have a negative effect on your credit score regardless of how responsibly you use them. Consider these questions before choosing a card:
Q: Do you have a scholarship or financial aid? Scholarship funding and financial aid checks often come in a lump sum at the beginning of a semester. If you trust yourself to keep your spending in check, this can provide an opportunity to earn a lot of points on a credit card that offers rewards or cash back. You can use the card and pay the full balance each month from your funds. Manage this well and you could have points to help pay for a flight home for the holidays depending on your redemption options. However, if you find you have a hard time managing your spending throughout a semester, you may be better off with a different card.
A: Consider a rewards card
Q: Are you working your way through college? Making ends meet and still making grades is a big challenge for most students who work part or full time while earning a degree. No one should sign up for a credit card with the intention of running a balance, but the reality of a working student is that there may be a month where an unexpected car repair forces you to carry a balance until you can pick up some extra shifts. A card with a low introductory interest rate can help keep you out of financial trouble while you’re working toward your goals.
A: Consider a card with low introductory interest rate.
Similarly, if you are heading off to an out-of-state college or university, that’s another reason to look into cards that offer airline miles and travel rewards. By accumulating miles on purchases, you could make it home for a visit sooner than you think.
Student credit card drawback: You need to be a college student
Remember that when you apply for a student credit card, you may have to provide proof that you’re enrolled in college.
If you’ve graduated, or you’re no longer a student and you’d like to begin building a credit history, a secured credit card could be a valid option. It also can be a way to bounce back if you are looking to rebuild your credit history.
With a secured card, you pay a deposit upfront, which serves as your credit limit and covers the credit card company’s losses if you’re unable to pay your bills. If you demonstrate responsible credit management across all of your cards and loans, you may qualify for an unsecured credit card, which is a more traditional credit card that does not require a deposit.
If you decide to apply for a secured credit card, you may want to choose one that reports to all three credit bureaus (Experian, TransUnion, and Equifax) so you can establish or rebuild your credit history.
If you’re eligible, a student credit card could be a better option since it doesn’t require a deposit. However, if you’re no longer in school, pausing your classes, or you have poor credit, a secured credit card could be the way to go.
Student credit cards can have long-lasting benefits
As students transition out of school and into the workforce, the good financial habits they developed with a student credit card could carry on into good lifetime financial habits.
Then, you could use the solid credit history you established with the student credit card to rent a good apartment, get low interest loans, and access more money for future savings.
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