As summer comes to a close, and college students prepare to return to school, many will be able to apply for their own credit card account for the first time. And as students browse through the credit cards offered, they might be tempted to apply for a credit card specifically marketed to students, but is this a good idea?
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Before choosing a credit card to apply for, students should first decide if they are ready for one. Students and other young adults who open their first credit card account will likely have little experience managing a budget, yet will be faced with many of the personal finance challenges as more experienced adults. When the expenses of college are combined with the limited income that most students have, this can be a recipe for disaster.
For example, students can be vulnerable to incurring debt and missing payments. Worse, both their debt and any bad habits they develop in college may follow them for years after graduation. That’s why it’s important that students learn strong skills to manage their personal finances and avoid debt before signing up for a credit card. However, when used responsibly, credit cards can also help a student build a credit history.
Student Credit Cards & the Law
The Credit CARD Act of 2009 established certain guidelines for students and young adults to obtain credit cards. Under this law, adults under 21 years of age have to prove that they have the income necessary to repay a loan before being approved for a credit card. If the student doesn’t have the necessary income, the law also permits a family member, guardian, spouse or even a friend who is 21 or older to co-sign an application for them. However, while it can make sense for parents to co-sign an application in some cases, it’s important to consider the potential pitfalls of co-signing a credit card application of a friend or classmate.
How Student Credit Cards Are Different
So once you have made the decision to open up a credit card account, what’s the advantage of applying for a card specifically marketed to students? First, student credit cards will have lower acceptance requirements, specifically tailored to young adults with little or no credit history. (If you’re not sure where you stand, there are many ways to check your credit scores for free, including through Credit.com.) But as a tradeoff, student credit cards tend to have higher interest rates and less attractive incentives (like sign-up bonuses and introductory financing offers).
At the same time, some student credit cards can include features designed to promote good habits among cardholders. For example, the Discover card just introduced a program to offer Discover it for Students and Discover it Chrome for Students cardholders $20 in cash back each year that they have a grade point average above 3.0. In addition, Capital One’s Journey Student Rewards card offers an additional 0.25% cash back each month when students make their payments on time, for a total of 1.25% cash back.
If you’re not sure which student credit card to get, this expert guide shows you how to look for a student credit card that will make sense for you.
Other Things to Consider When Students Choose a Credit Card
Thankfully, most student credit cards have no annual fee, but there are other fees worth looking out for. Although most cards will have late fees, some will automatically waive this fee the first time. Further, students who may be studying or vacationing outside of the United States will want to look for a card with no foreign transaction fees, since most cards impose a 3% charge on these purchases.
There are also student cards that offer rewards, although some would consider it unwise for students to use a credit card that rewards them for spending more money. In addition, there are even student credit cards that offer 0% APR promotional financing, but these offers might also encourage students to incur debt. In any case, it’s a good idea to weigh the possible risks with the rewards. If a student does incur debt, it’s important that they establish a plan for paying it off. This calculator can help them see how long it will take to pay off their credit card debt.
Finally, it can be a good strategy for students to open a credit card account with the same institution that they already hold a checking or savings account with. In this way, students can manage all of their accounts with one login, and payments become a quick and simple matter of transferring funds from one account to another, rather than issuing a payment to a separate biller.
By closely examining the advantages and drawbacks of student credit cards, young adults and their parents can make the right choice for their needs.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
This article originally appeared on Credit.com.
Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason's a commercial pilot. He graduated from the University of Delaware with a degree in History. More by Jason Steele