Student credit cards can be confusing.
You don’t always have to be a student to qualify for one. And even if you are a student, there’s no guarantee your application will be approved. Don’t let that discourage you.
Having a student credit card can be a smart financial move if you know how to use it. In the right hands, it can help build a solid credit history, earn rewards, and teach young adults how to manage a budget. However, student credit cards can also push you into a cycle of debt and derail your financial life before you even graduate.
Getting a student credit card is not a decision to be taken lightly. They can be convenient and help your credit, but hefty fees and high interest rates can set you up for financial failure if not used correctly.
This guide will help you understand how to get the most out of your student credit cards without allowing them to become a debt trap.
What are student credit cards?
Student credit cards are designed specifically for college students with limited or no credit who are in their early twenties or younger who don’t already have a credit card. They generally don’t require you to have a credit history, and some even offer incentives for you to learn how to manage credit responsibly or to get good grades. Student credit cards are generally unsecured, which means that you don’t need to put up a deposit to get approved. Students can, however, apply for a secured credit card if they can’t get approved for an unsecured student credit card.
The average student carries three credit cards and a monthly balance of $906.
Overall college students manage their credit cards responsibly. Nearly two out of three students (63%) pay their credit card balance in full every month. Only 9% pay the minimum monthly payment or less.
The average credit card balance is $906 but it varies substantially depending on the age of the student. Younger students (18-20), for instance, avearage a card balance of $611.
Most students pay their own credit card payments
Nearly three out of four (73%) students are responsible for paying their own credit card payments. However, when parents do take responsibility for the entire payment, the average monthly balance is nearly double ($779 vs. $1,461).
The Student Credit Card Act and special partnerships
Before the Credit Card Act of 2009, credit card issuers would set up booths on campus, give away free T-shirts, pizza, and other prizes to students just to sign up for a credit card. The issuers didn’t even check to see if the students had the means to make payments.
Now, credit card issuers aren’t allowed to market directly to students within 1,000 feet of a college campus. Students under 21 need to either prove they have enough independent income or have a cosigner. However, credit card issuers are still free to partner with colleges, alumni associations, and foundations.
A 2017 report by the Consumer Finance Protection Bureau shows a total of 225 student credit card agreements. Needless to say, these are business arrangements designed to generate income for the colleges and drum up business for banks. According to the same report, these arrangments generated $27.6 million for the higher education institutions that marketed them. Colleges don’t necessarily have the best interest of students when deciding which credit cards deserve their endorsement. Therefore, it is best to do your homework and choose your student credit card by yourself after researching the market.
Why it’s wise to start building credit in college
Your credit score is one of the most important aspects of your financial health. It is based on the information found in your credit reports with the three national credit bureaus: Experian, Equifax, and TransUnion.
Your credit score is a good indicator of your ability and willingness to repay your debts responsibly.
Whenever you apply for a loan or credit card in the future lenders will look at your credit score to determine whether to approve your application.
The better your credit score, the lower your interest rate will be relative to the loan or credit card you’re applying for.
Even if you never borrow money, a bad credit score can hurt you. It may damage your chances of getting a job, finding an apartment, or qualifying for a cheaper rate on your car insurance.
As a result, the sooner you start building a positive credit history, the better. A student credit card while you’re in college can build your credit to the point where you can qualify for loans and better credit cards as soon as you graduate.
How to qualify for a student credit card
As a college student, it’s unlikely that you have an established credit history. So, the main concern credit card issuers have is that you have the ability to repay any debts you incur with a student credit card. As such, your income is an important factor.
While credit card issuers don’t publicly share their minimum income requirements, they’re generally looking for part-time or full-time income. The type of income you can claim varies depending on how old you are.
For example, if you’re under 21, you can only report independent income, including:
- Personal income.
- Regular allowances from parents or other sources.
- Scholarships and grants.
Once you’re 21, however, your list of possibilities expands:
- Personal income.
- Regular allowances and gifts.
- Scholarships and grants.
- Income from a spouse or partner.
- Trust fund distributions.
- Retirement fund distributions.
- Social Security distributions.
Note that student loans aren’t on either list. Student loans are debt, not income, so avoid including those when you apply for a credit card.
You need to be at least 18 years old to get approved for a credit card on your own. That is the legal age at which you can sign a contract.
Student credit cards that accept cosigners
If you can’t get approved for a student credit card on your own, you can ask a parent or other trusted family member to cosign an application with you. Just keep in mind that not all credit card issuers allow cosigners.
In fact, of the top nine major credit card issuers, only three allow cosigners: Bank of America, U.S. Bank, and Wells Fargo.
If you decide to apply with a cosigner, make sure to ask someone who has a good track record with credit cards and a solid credit history.
How to pick the right student credit card
There are several student credit cards to choose from, and there’s no single best student credit card. It all depends on your priorities and spending habits. So, it’s important to know what to look for to make sure that you find the one that suits you best. Students are actually savvy shoppers when it comes to credit cards. A recent report by the Department of Education showed that reward ponts and cashback benefits are among the top reasons students choose a credit card.
Here are some features to consider when comparing student credit cards.
No annual fee
There’s a reason for the term “starving student,” and you shouldn’t have to pay an annual fee on a credit card. Most of the top student credit cards don’t charge them, so if you find one that does, skip it and move onto the next one.
Low interest rates
Interest rates for student credit cards can range from 13% to 20% APR. Compare rates when shopping for a card and go for the card with the lowest standard rates.
Foreign transaction fees
If you have plans to study abroad, you’ll definitely want a student credit card with no foreign transaction fees. The problem is that most credit cards, let alone student credit cards, charge them. The typical foreign transaction fee is 3% of every purchase you make overseas.
Not all student credit cards offer rewards, but some of them do. As you compare credit cards, look at how their reward programs are structured. For example, is there a sign-up bonus? How do they reward you for your purchases? Some offer just a flat rewards rate on everything you buy and others offer bonus rewards for certain purchases.
Some student credit cards offer bonus rewards if you use your card responsibly or get good grades. Others may offer to increase your credit limit if you make your payments on time for a certain number of months. The key thing to understand with credit cards is you must make their payments on time.
As you compare different cards, look for these incentives that could make your life easier.
Credit monitoring tools
Most major credit card issuers offer free access to your FICO credit score, and some go the extra mile and share the different factors that influence your score. This type of tool can be invaluable as you improve your credit and learn what activities impact your credit score.
5 tips for using a student credit card responsibly
Just having a student credit card won’t magically improve your credit score. It’s important for you to know what factors affect your FICO credit score and what you can do about each.
1) Payment history (35%)
While your payment history is the most influential factor in your credit score, it’s one of the easiest to get right. Simply make your monthly payment on time every month. It’s that simple. And if you want to avoid paying interest — which we highly recommend — pay off your balance in full each month before the due date. That way you can build your credit without ever paying a cent in interest.
2) Amounts owed (30%)
This factor is a little trickier than the first one. It has to do with your credit utilization, which is calculated by dividing your credit card balance by your credit limit. It’s generally recommended to keep your credit utilization as low as possible. But a good rule of thumb is to keep it below 30%. So, if you have a credit limit of $500, keep that balance below $150.
3) Length of credit history (15%)
The longer you use credit responsibly, the better it is for your credit score. So, the sooner you get a student credit card and start using it responsibly, the more time you’ll have to build a solid credit history.
4) Credit mix (10%)
Lenders like to see different types of credit on your credit report –– for example, a credit card, a mortgage, an auto loan, student loans, etc. The idea is that, if you can manage multiple types of credit responsibly, you’re a good borrower.
We recommend avoiding taking out new debt just to build credit. But if you’re already taking out student loans, adding a student credit card can improve your overall credit mix.
5) New credit (10%)
Every time you apply for credit, the lender makes a hard inquiry on your credit report. These inquiries stay on your credit report for two years and can knock a few points off your score. If you apply for a lot of credit in a short period, it can come off as desperate. So, avoid applying for credit unless you absolutely have to.
Student credit card alternatives
If you’re interested in getting a student credit card, you can compare the top options using SuperMoney’s student credit card review page.
If, however, you’re having a tough time getting approved on your own or with a cosigner, another option is to get added as an authorized user on a parents account. By doing this, you get all the benefits of their account history without the liability for the card’s charges.
Another other option is a secured credit card. This type of card allows you to build your credit, but you must make a deposit for your credit limit. That deposit is typically at least $200.
This is another way to prove that you will make your payments on time, and from here, you can upgrade to a standard unsecured card. And it can be worth it to start building a credit history.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.