The Difference Between Student Credit Cards and Secured Cards

Everyone with an excellent credit score had to start somewhere, and that somewhere was no credit history at all. If you’re dipping your toe in the pond of financial responsibility, one place to begin is by building up your credit score.

Why Is A Good Credit Score Important?

A good credit score tells lenders that you’re responsible and will likely pay your bills on time. As a reward for that good behavior, you’ll be offered lower interest rates on loans — for school, buying a home, buying a car, starting your own business and more.

You stand to save thousands of dollars in interest payments if your interest rate is lower. What’s more, a good credit score makes you a more attractive applicant on a lease for a place to live, and can even affect your access to cell phone plans.

If you have no credit history or currently have a low credit score, it can be tough to be approved for a credit card. But there are cards out there that can help you create good habits and help build a credit profile.

Get Started With These Credit Card Options

There are two types of cards to explore if you’re getting started, or you have some credit history but your credit score is low:

Student Credit Cards

If you’re a student, you may qualify for a student credit card. You can also apply if your parent, guardian, spouse or another adult is willing to co-sign. You will also need to submit proof of full- or part-time schooling.

Using a student credit card with a co-signer allows you to create your own responsible bill-paying habits, while leaning on the co-signer for financial expertise. Be warned that any irresponsibility on your part will be reflected in your co-signer’s credit score, and you’ll both be held responsible if you go into debt.1

If you think a student credit card is right for you, choose one with benefits and rewards that suit your life. The Discover it® Chrome for Students has no annual fee, 1% Cashback on your purchases (and 2% Cashback on gas and restaurants on up to $1000 in combined purchases each quarter). With Discover Good Grades Reward, you may be able to earn $20 Cashback Bonus each school year, for up to the next 5 years, if your GPA is 3.0 or higher.3

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Secured Credit Cards

If you’re no longer a student and you’d like to begin building credit history, a secured credit card may be an option. It also can be a way to bounce back if you are looking to rebuild your credit4.

Secured credit cards are easier to qualify for. You give a deposit, which will cover the credit card company’s losses if you’re unable to pay your bills. You’re granted a credit limit, usually equal to the amount of your deposit. If you demonstrate responsible credit management across all of your cards and loans, you may qualify for an unsecured credit card, or, in other words, a traditional credit card that does not require a deposit.

If you decide to apply for a secured credit card, choose one that reports to all three credit bureaus (Experian, TransUnion and Equifax). This will allow you to establish a credit history.2

How Do You Choose?

If you’re a student, you could be eligible for a student credit card or can apply with a co-signer. This could be a better option for you, since no deposit is needed for a student card.

However, if you’re no longer in school, or you have damaged credit, a secured credit card could be the way to go. In both instances, know that you won’t have a very high credit limit and use these cards carefully.

A credit card isn’t free money. You should use it for your everyday spending and not for impulse purchases. Spend within your means and pay your bills on time. Avoid carrying a balance by not spending more than you can pay back. Keep your debt utilization ratio below 30%, meaning you should try not to spend more than 30% of your credit limit during a billing cycle. Hitting your credit limit each month signals to lenders that you’re risky to lend to, and that can jeopardize your attempt to raise your credit score.

Manage your credit cards and loans responsibly and you’ll be on your way to build a good credit history.

Resources:

  1. http://www.thesimpledollar.com/best-student-credit-cards/
  2. http://www.nerdwallet.com/blog/uncategorized/secured-credit-card-rewards-features/
  3. Good Grades Rewards: Good Grade Reward only available to new cardmembers on or after 7/23/2015 who indicate on their application that they are currently enrolled in college, and whose accounts are current and remain open when the Good Grade Reward is requested. Students with a Discover it® or Discover it®chrome card who have a GPA of 3.0 or higher (or equivalent) during a School Year (September – August) may apply at Discover.com for a $20 Cashback Bonus (“Good Grade Reward”). One Good Grade Reward per School Year, per account, up to a maximum of five (5) consecutive years from the date your account is opened. Terms of Good Grade Reward Offer are subject to change.
  4. Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit.

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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