Credit cards for college students come with their own regulations and concerns for parents. College has enough financial burdens that should not be made worse with the wrong credit card or irresponsible use of credit. With careful planning, students can take advantage what credit cards offer while avoiding their pitfalls.
Advantages of credit cards for college students
There are many reasons for students to have credit cards which include:
- They act as a type of learning permit teaching students financial responsibility if they can use them properly.
- Parents have an easy way to support their children and track their spending.
- When the cards report to the credit agencies, students are establishing their own credit histories.
Rewards are another factor. Credit cards for college students often offer rewards of 1-5% on select purchases or other benefits. This is something that one needs to consider when deciding on which card to go with. While purchases obviously should not be made for rewards, it is nice to get something back for purchases that needed to be made regardless.
Disadvantages of credit cards for college students
College students are often less mature than they think they are and controlling the spending urge is one of the most difficult things for anyone to do. At a time in life when many students are racking up debt anyway, spending more money they do not have by adding credit card debt may not seem like a big deal. However, with the stiff interest rates credit cards charge, this kind of debt can be much more damaging that all their student loans combined.
Because of the debt problems caused by credit cards for many college students, the Credit Card Act was enacted to limit their availability to young people. Most importantly, those under 21 now need adult cosigners to receive credit cards and written permission from those cosigners to have the credit limit increased. In addition, the person applying for the card must show: “financial information indicating the consumer has an independent ability to make the required minimum periodic payments on the proposed extension of credit.”
Finally, those marketing credit cards can no longer offer promotional items to get students to fill out application forms. While the law has been criticized as vague and ineffective, it does place limits on the credit card options those under 21 have.
Options and things to look for with student credit cards
Credit card companies still regard college student as an attractive market and offer incentives to attract their business. These include:
- 0% introductory APR (these will expire after a limited time)
- Free balance transfers
- Various rewards (such as cash back)
- Lower rates (although these rates are still very high when compared to the rates for other types of credit). Keep in mind that those with income and a good credit score can get the lowest rates.
Those looking for the right cards need to decide what is important to them. For example, a low APR should not matter if balances will not be carried forward month to month. People who might miss payments need to compare the various fees, which can be hefty, credit card companies charge for late payments or in other situations.
Steps to ensure the proper use of credit cards for college students:
- Strictly follow a no-balance rule and pay the card in full every month.
- Keep credit limits as low as practical.
- Use electronic bill pay to automatically pay the entire balance of the credit card every month. This will help enforce spending discipline and stop credit card late fees.
- Never take out cash advances since these will have fees and high interest rates.
- All parties involved should use online account access to track spending and carefully review statements.
Secured credit cards
Since they require maintaining a deposit equaling the credit limit, these are a good way to build credit, enjoy the conveniences of credit cards and avoid debt all at the same time. Their downside is that they often have fewer perks and higher fees than other credit cards.
There are a lot of sites that offer comparisons of the different options to include this credit card comparison. Some of the top credit cards include Citibank, Discover and Journey. It pays to shop around carefully and take advantage of competition for customers to get the best card possible.