It pays to do your homework.
What are the best student cards out there? First, before we get into the difference between a good credit card and a bad credit card, it’s essential to understand what a credit card is. Only then can you select the best credit card offers for your undergraduate and graduate needs.
Lesson 1: For best student cards, should we look to debit or credit?
A debit card offers the convenience of a credit card but takes money directly from your checking account. Conversely, credit cards use a line of credit, i.e., an amount you eventually must pay back with added interest. When you purchase something with a debit card, the amount in your account is placed ‘on hold’ until the seller sends the transaction to their bank. This action initiates the fund transfer from your account. Additionally, when you use a debit card, you must enter a four to six-digit PIN. With a credit card, you just sign and go.
The most significant difference is how the payment for the transaction is approved. When you use a credit card, you borrow money from a lender via a line of credit. The maximum amount available to you is the credit card limit. This amount varies widely based on credit history and earnings. No matter what your credit card limit, however, it is wise never to “max out” your card. Doing this negatively impacts your credit score (think of this score as an Uber rating).
Don’t forget about the interest.
You can use a credit card to make purchases, but because you are borrowing the money, you will pay interest. That’s a charge for using the bank’s money, a percentage of the amount borrowed. To avoid paying this added amount, you need to keep up with the monthly payments to the credit card company.
Despite the potential to cost you more if you don’t make timely payments, credit cards do offer more protection. They are generally safer because unlike with cash or checks that you are solely responsible for, financial institutions monitor credit cards. These institutions are vigilant against any fraudulent activity. If someone steals your account number, you won’t have to worry about dealing with deductions from your account or paying for something you didn’t buy. Although debit cards do offer to refund your money too, it takes a few business days. Why put your dollars at risk unnecessarily?
Lesson 2: What’s the catch?
If you find it challenging to stay on top of your finances, then a credit card isn’t right for you. A good credit history, however, is vital to your future financial health. If you have a poor credit history, lenders may deny you from getting car loans, home loans, and even employment! So from the beginning, it is imperative to understand how credit cards work.
The most compelling reason to use a credit card is the ability to earn cash back rewards. There are several programs. Provided you monitor your purchases closely, you could make hundreds of dollars a year just for buying the stuff you were already going to buy. The possibility of cash rewards, however, is one of the reasons people accumulate credit card debt. It’s easy to overspend, so don’t chase cash back rewards if you can’t pay the balance owed.
Know the Annual Percentage Rate
If you are considering a credit card, then you should pay attention to the APR (Annual Percentage Rate). You will pay this interest back on the money you are borrowing when you use your credit card. For example, if you purchase something for $100 and your APR is 21%, you could end up spending $121 for that item. To avoid this extra expense, make your payments on time and in full.
You will see the APR listed clearly on a credit card application. The four most common types are the introductory APR (a temporary, reduced rate to entice consumers), the balance transfer APR, the penalty APR, and the cash advance APR.
You should also consider the credit limit, i.e., the maximum amount extended to you by the bank. The average limit is between $5,000 and $10,000, but this amount is much lower for student credit cards (typically a $1000 or less).
Before moving on to student credit cards, it is crucial to understand another type of credit card – the store credit card. Many retailers offer this form of credit card, and it usually comes with less stringent application terms. It can also come with enticing store discounts, but beware – they also come with extremely high interest rates. A store credit card may also restrict where you can use it. The Elder Beerman card, for example, can only be used at its affiliated stores.
Lesson 3: What’s a student card?
Now that you know what a credit card is and how it should be used, let’s explore the difference between a standard credit card and a student credit card.
To get a credit card, you need a credit rating. But to get a credit rating, you need a credit card. The solution to this financial puzzle is a student card. Most of the major credit card issuers offer student cards because they allow the holder to establish a credit history while in school. Typically, students have a low or non-existent credit score, so student cards are a perfect way to develop healthy financial habits.
You should keep in mind, however, that due to the credit card act of 2009, no one under the age of 21 can apply for a credit card without a co-signer or proof of independent income. Being a student is not enough for you to qualify for a credit card. A student card may also offer incentives in the form of cash back rewards or points. A standard credit card can also do this, but a student card may be more tailored to your specific needs.
Lesson 4: Is a student card right for me?
A credit card is essential for an adult in the 21st century. You may already be an authorized user on your parent’s card, but having your own credit card is a good idea. You’ll learn good spending habits and establish your good credit score.
There are opportunities abound.
The easiest way to actively build credit is with a credit card because the length of credit history makes up about 15% of your credit score. Paying off your student loans on time can help but won’t make as significant a difference as taking care of your credit card. That credit score can then help you get a loan on a new car or even help with a mortgage for your first home. Skipping the chance to pick up a student card may make these things harder in the future, so don’t miss out on the opportunity to build credit up for your FICO score.
Although a good credit score is a reason enough to get a student card, it’s not the only reason. Having a student card is also physically more convenient. You can leave your place with your keys, card, licenses, and phone. No big, bulky wallet or purse filled with cash to flash around.
Lesson 5: How do I get a student card?
So, you’ve decided that a credit card is right for you. Now what? The process requires more thought and time than just applying to every credit card company that offers one. It is best not to send more than one application to multiple credit card companies as credit bureaus will track it. Your credit report will show such actions, and it will hurt your score before you’ve even started.
There are tons of cards available, but you should research which credit card best suits your needs.
Many cards have unique features and conditions that you need to consider:
- APR – One of the critical elements of any credit card. The APR or Annual Percentage Rate is the interest charged on the outstanding balance. If you pay in full every month, then it won’t be charged to you. Remember – it’s good to get into the habit of paying all of your bills on time.
- Credit Limit – The amount you can spend with your credit card per month. For most student cards, the limit is usually $1,000 or less, but issuers can increase this limit on some cards provided your make payments of the outstanding balance on time.
- Rewards – The ability to earn cash back and account opening bonuses (aka, sign-up bonuses). These sign-up rewards often appear as bonus points or cash back after spending a certain amount in a set period. You can use collected points on gift cards with multiple retailers. Cash back is a percentage of your spending, which issuers then credit to your account. A sign-up bonus could be a higher rate of cash back or a gift of loyalty points depending on the card.
- Annual Fee – When applying for a student card, you most likely won’t have to worry about annual fees. However, some reward cards do charge this fee ranging anywhere from $50 to $500.
- Balance Transfer Fees – The fee applied for transferring outstanding balances from one card to another. As a student, this is something you really should avoid. Making a transfer can incur a balance transfer APR, making the transfer costly.
- Cash Advance Fees – Sometimes, there is a need for emergency cash. You can use your credit card to withdraw it, but the card issuer will charge an APR for the convenience.
- Penalty APR – If you fail to pay off your outstanding balance for three consecutive months, then this fee – one of the highest fees that come with any card – will be applied. This penalty, along with its effect on your credit score, is something to avoid at all cost.
These financial terms are daunting for first-time cardholders. But don’t be intimidated – responsible spending, staying under your credit limit, and making payments on time eliminates most of the negative ones, especially the fees.
Let’s talk about other options.
If committing to a credit card and using it responsibly isn’t right for you yet, you can still build credit by becoming an authorized user on another person’s account. You can then use their card with their consent and slowly build your own credit score. Make sure that the person who opened the credit card account keeps up with the payments though. If they don’t, it will negatively impact your score.
Before filling out your credit card application, you will need a few critical items, which can differ among the various card issuers:
- Form of ID – Financial institutions require a photo ID, such as a driver’s license or passport. If you don’t have one, then you can use an ID with no photo, such as a birth certificate or health insurance card. As a last resort, some issuers accept a primary ID with no picture and a secondary ID, such as a utility bill. Most cards will also require a social security number. A social security number is not always necessary with some card issuers, especially those aimed towards travelers.
- Proof of Income – Part-time or summer jobs are acceptable proof of income on a student card even though they typically are invalid for standard credit cards.
- Bank Account Balance – You will need to provide current bank account balances, as well as the balance on any other cards and the amount of any outstanding debt.
- Monthly Expenses – You will also need to know the total monthly amount for rent, fuel, groceries, utilities, and transportation.
Lesson 6: Must I be a current student to get one?
Yes and no. Discover cards require you to be enrolled in a two or four-year institution, while the State Farm card asks for proof that you attended some form of post-secondary education. Some cards require no evidence of enrollment, such as the Journey card where you only have to meet the credit requirements. The best thing to do is to check the conditions of the card issuer and make sure you satisfy their criteria. If you can’t get a student card for some reason, then you can look into secured cards or even a store card.
Lesson 7: What happens if card issuers refuse me?
Don’t panic if your initial application gets rejected. It happens; sometimes through no fault of your own. The tips below will increase the likelihood of your eventual acceptance:
- The card issuer will provide a report outlining why they refused you. The fair credit reporting act exists to ensure you know what needs improvement. Maybe they refused your application because of your income or even a non-related credit issue. Either way, you will know what to fix. Also, remember not to apply to too many issuers at once, as this leads to rejection. These “hard inquiries” show up on your credit report and can be off-putting for an issuer.
- Double-check your submitted application for mistakes. You may have marked your income as $600 instead of $6,000 or your rent accidentally as $5,000 instead of $500. If you do discover a mistake on your application, call up the customer helpline for the card.
- Check your credit report for errors. You can make a mistake on your application, but the credit reporting bureaus can also make mistakes. One in four consumers finds errors in their reports. For a student card, this may not be an issue since a low, or even no credit rating is common. If you do find any errors, you should dispute them and have them fixed.
- You can also ask the credit card issuer to reconsider their decision. It is usually best, however, to try another card issuer. If it is over a minor detail and you wanted a particular card, then it doesn’t hurt to call up the customer helpline. You may have a one-time late fee from a past payment that hit your credit score. Therefore, it is possible to convince them that your spending habits are in line with their requirements. Again, maybe not such a big deal for a student card but something to consider if you encounter future rejection.
- If the card issuer’s decision is final, then apply for a different one. Pick three of the most appealing ones and begin the process again. If your first choice doesn’t work out, you have others as backup.
Lesson 8: How should I use my new card?
You can use your new credit card on countless purchases, but you should consider what your particular card is tailored to. For example, if there are no foreign transaction fees, then that card is excellent for traveling during spring break or study abroad programs. Conversely, if your card charges a 3% foreign transaction fee, then is it best not use it for travel.
Paying your tuition fees with your card is a good idea, but it depends on whether your university charges a convenience fee. Sometimes the added costs don’t justify the convenience.
If your new card offers reward points or cash back, then it’ll pay (literally) to use that card for highlighted purchases, such as gas and food. Some cards offer 2% back at restaurants and gas stations, so know what type of card you have. Below you’ll find the best cards to use.
Lesson 9: You’re ready, but are your parents?
Attending college is already a big step towards becoming an adult, so adding a credit card might seem to invite unnecessary stress for students and parents. Will the card be used responsibly? Will it encourage risky behavior? What happens if we can’t pay it off on time?
Despite these valid concerns, getting a credit card early on is in your child’s best interest. Of course, you’ll have to support them and model good financial habits. Think of it as teaching them a class on fiscal responsibility. There may be missteps, but it’s best to learn from them early on.
Here’s what parents should know.
As previously mentioned, adding another authorized user to your account is a great way to get an early start on building your child’s credit score. Some card issuers don’t even require your child to be 18. If you chose this option, however, you should know the following:
- Once an authorized user removes himself from a card, the credit rating is removed from the student’s credit report. This runs counter to one of the best reasons to get a card in the first place, namely establishing their credit history.
- Make sure that the card reports to one of the three major credit bureaus (Equifax, Experian, and TransUnion). Otherwise, the authorized user won’t get the credit for building their credit.
- Ensure you have good credit. Setting your child as an authorized user on an account with a poor credit score is counterproductive.
If you are concerned about your child’s ability to spend responsibly, then a secured card is an option. They require an upfront deposit and have low credit limits.
Have a back-up plan.
No matter the type of card, you should stress healthy spending habits and periodically check to make sure they pay their bills on time. It will also help to keep the following in mind:
- Make sure your son or daughter accurately keeps track of their spending. You can set up alerts on your phone, which go off once the user spends a certain amount. This handy option can help your child avoid monthly credit limits.
- Set up an emergency fund away from the credit card, so it doesn’t become something to rely on as a last resort. Given the low credit limit on student cards, it doesn’t take much to max out a card.
- Show your child how to monitor their credit score and credit history regularly. The credit card may even have an accompanying app for this. If not, check them at myfico.com.
If your child is under 21, then you’ll most likely have to co-sign for a credit card. Note that by co-signing, you are also responsible for any debts accumulated on the account.
Lesson 10: What happens after graduation?
Upon completing your studies, you should contact your credit card issuer and let them know that your circumstances have changed.
Usually, card issuers will present two options. The card issuer might first offer to let you keep the card with the student terms. This option may be attractive if you need additional time to figure things out; perhaps more school or just time to contemplate your career.
There’s an option to upgrade.
The card issuer might also offer you the option of upgrading to a full credit card. If you have demonstrated sound financial choices, then the increase in credit limit will allow you to strengthen your credit score further. The increase may be substantial, so avoid the temptation to overspend. Ideally, student card or not, you should avoid approaching credit limits because a good credit utilization ratio accounts for 30% of your credit score. An upgraded card can also come with higher rewards and lower interest.
If you can only stay with your current student card, then explore the credit market for a better option and make an application for a new full credit card. If no other option is available, be sure to keep using your student credit. Otherwise, you may find it automatically deactivated.
No matter what your options, it’s always better to keep some cards because you’ll still improve your credit score.
Lesson 11: What are the best student cards of 2019?
The best credit card offers come with no annual fees, a low-interest rate, and rewards.
Discover it Student Cash Back
Discover it offers a few different credit cards. The first is the Discover it Student Cash Back card, which many experts consider the best overall student card. The stand out feature is the ability to earn 5% cash back on selected purchases (categories rotate every quarter) and 1% back on other purchases. With this cash back credit card, the rewards scheme per quarter is turned off once the student reaches the $1,500 purchase cap. Also, you must opt into this scheme for the 5% cash back every quarter, so having the card alone does not make you eligible for the rewards. As a bonus, Discover it will double the amount of cash back you receive at the end of your first year.
Let us break that down for you.
For example, if you made $6000 worth of purchases in the right category, then you’ll earn approximately $600 in cash at the end of the 12 months. The bonus category changes, so you’ll need to track each category per quarter to get the maximum reward. It is also possible to earn a $20 bonus per school year (up to 5 years) if your GPA is 3.0 or higher. There is no annual fee to worry about, which is always a bonus.
The card also comes with 0% APR on purchases made within the first six months. After that initial period, a higher APR (5.24% to 24.24%) takes effect. If you fail to make timely payments, then you’ll be accessed a $37 late fee.
Discover it Student Chrome
This second option is very similar to the Student Cash Back card, except it comes with fewer opportunities for rewards. With the Discover it Student Chrome card, you can earn 2% cash back per purchase but only at restaurants and gas stations, and it has a $1,000 maximum per quarter. Despite the lack of cash back incentive, you do get 1% on all other purchases with no limit, a first-year cash back match, and the reward for good grades. Unfortunately, this card, like the other Discover card, comes with low acceptance abroad so it may be unsuitable if you plan to travel.
With either Discover it card, the credit card issuer checks to ensure if you are enrolled in an academic program. Furthermore, as stated above, you need an independent source of income, which can be a part-time internship or summer job. Despite this fact, you don’t need a credit score or a credit history. As with the Discover it Student cash back card, there is a $37 late fee and no annual fee.
Deserve Edu Student Credit Card
This card is ideal for international students because there is no requirement for a social security number, security deposit, or co-signer. The easy access makes it appealing for those students looking to build their credit score. More important, there are no foreign transaction fees.
There is also a cash back rewards program, which is set at a rate of 1% on all purchases with a chance of more if you are a responsible spender. The cash back rewards scheme also includes up to 3% on travel purchases, 2% on restaurants, and 1% on everything else. The card also offers a free six month trial of Amazon Prime and then $49 after that period. That is 50% cheaper than the standard package and comes in handy if you plan to purchase your student textbooks via Amazon.
The credit limit is $5000, and the standard interest APR on purchases is 20.99% with no annual fee like most student cards. You even get a free lifeline in that your first late fee comes with a waiver if necessary.
Another benefit is that students with a poor credit rating can obtain one. The credit card issuer considers current financial stability and earnings potential as opposed to just looking at your credit history. One downside to this card is that you cannot take out cash advances, which is a problem if you need emergency cash.
Citi Rewards+ Student Card
If you like saving points for gift cards, electronics, appliances, and travel, then the Citi Rewards+ Student card is perfect. You can use accumulated points on Amazon, Best Buy, or as a statement credit. You can also earn points buying gas and groceries with every $1 spent, which equals 2 “Thank you” points. The ratios $1 to 1 point on all other purchases.
As an introductory offer, Citi gives you 2,500 bonus points in your first three months if you spend $500 or more with your rewards credit card. They also round up your points to the nearest 10, so a $2 candy bar earns you 10 points. You can then redeem these points on other purchases. The point offerings compared to cash back can be more rewarding with a $10.99 purchase netting you 20 points or 20 cents (at the highest tier offering) compared to 16 cents of a 1.5% cash back scheme.
Pay attention to the fees.
There is no annual fee and an introductory APR on purchases for the first seven months. After that period, the APR increases anywhere from 6.74% to 26.74% depending on your credit history. There is also a high penalty fee for late payments with a 29.99% APR and a $39 fee. There is also a 3% foreign transaction fee to consider if you plan on traveling. Cash advances are available with a fee of $10 or 5% of the amount, whichever is greater.
One bonus of this card is the flexibility to pick a payment date. You can choose to pay your balance at the beginning, middle, or end of the month. Don’t let this opportunity pass because it increases the likelihood of timely monthly payments, zero late payments, and excellent credit history.
Citi Secured Mastercard
Citi Secured MasterCard is a secured credit card. Unlike other credit cards, you must deposit a cash amount equal to or higher than the card’s credit limit. The credit limit is often much lower than a usual credit card though, so with timely payments, this limit can be raised and usually without a further security deposit. The Citi Secured credit card issuers may return their security deposit and increase their limit after 18 months of on-time payments.
Here’s how it helps those with poor credit.
The required security deposit aims to reduce the risk for those with a poor credit history. Millions of Americans have low credit scores, and that low FICO score negatively impacts their ability to rent, get a mortgage, and even find a job. This secured card also keeps track of your payment patterns and reports them to the three major credit bureaus. Thus, the Citi Secured MasterCard is excellent for improving low credit history.
Unlike the other cards, this one doesn’t offer any cash back rewards. Moreover, the average APR on purchases for this card is 24.74%, the same rate for the balance transfers. The cash advance APR sits around 27.49% with a penalty APR up to 29.99% on average. All high percentages, so definitely make your payments on time if you select this card.
Journey Student Rewards from Capital One
This credit card offers decent cash back rewards with minimal fees. What’s more, you don’t have to be a student to apply; you just need an average credit history. No annual fees and no foreign transaction fees make this an excellent choice for first-time credit card users. There is a 1% cash back reward on all purchases that will increase to 1.25% if you pay your balance on time. You have the option to choose your monthly due date, and it’s possible to see a credit line increase.
The one major downside to this card is the unusually high 26.96% APR on purchases. There is also a $38 late fee for late payments. The Journey Student Rewards credit card targets users who have some credit history but not quite enough to obtain other credit cards.
State Farm Student Visa
This card is great if you are a State Farm Insurance policyholder. It’s also ideal for a first-time card user because it has a low credit score requirement. You can generate reward points by paying insurance premiums with 3 points for every $1 (up to $4000) and 1 point per $2 spent on other purchases. You can then spend the points at participating retailers.
There is also no annual fee and no introductory APR offer. Unfortunately, there is a 3% foreign transaction fees. But this is a Visa card, so it comes with complimentary loss and damage coverage and a host of other student discounts. Overall, it is a great starter card.
Wells Fargo Cash Back College Card
This card has one of the most rewarding cash back reward programs available. For the first six months, you can earn 3% cash back on gas, groceries, and drugstore purchases, and then 1% cash back on other purchases. After the introductory period, all purchases offer 1% cash back. The cash back rewards can be directly transferred to your Wells Fargo savings account in increments of $25 or used for gift cards, travel, and much more. This introductory offer isn’t the only good one, however; this card also offers a 0% APR on all eligible purchases for the first 12 months.
You do need an existing Wells Fargo account to apply for this card, which limits your ability to get one. Finally, attractive incentives may not be enough to warrant the creation of a new account. Weigh your options before you commit.
Bank of America Travel Rewards
The perfect card for those students who are avid travelers. It offers decent reward points with 1.5 points earned for every $1 spent. There is also a potential $250 sign up bonus in the form of bonus points (25000 points) if you spend more than $1000 in the first 90 days. You can then exchange the points you gain for credit on flights, hotels, vacation packages, cruises, rental cars, or baggage fees. You can even earn additional bonus points if you bank with the Bank of America.
There is no annual fee and no foreign transaction fees (which we expect with a travel-focused card). There is a 0% APR for the first 12 billing cycles, and then an average rate of 17.24% – 25.24% APR.
The rewards policy is more restrictive than some of the other cards listed. Therefore, if you have an excellent credit score, you might want to consider other options. But if you can make good use of the available travel rewards, then this card is a good option.
Self Lender – Credit Builder Account
This one is not a typical credit card, but it is worth mentioning. The purpose of this card is in the name. Use it to build credit for your FICO score and improve poor credit history. You pay a one-time fee for this account and then are issued a small loan. You cannot gain access to this loan until you pay the previous loan off plus any interest.
Each month you pay the monthly payments, the card issuer reports to the three credit bureaus. Once the loan is paid off, credit bureaus release you from the amount, and you earn a higher credit score.
This account is not ideal for someone who needs immediate access to funds. Instead, it’s for those students who want to improve their credit score. Once the loan is paid off, you should look at getting a more traditional credit card and keep working to build your credit score.
Here are some other options for those students who have a poor credit score.
Lesson 11: So what’s the final answer?
Students have less disposable income and are more likely to have poor spending habits. The credit card issuers know this, so student cards have stricter credit limits than a standard credit card. Be that as it may, a student card – whether it is a secured credit card or not – is the best option for young adults.
If you can prove yourself to be financially responsible, then you can expect to see your credit limit increase. And you do this by avoiding late payments and overspending, as well as by diligently monitoring your finances. By staying on top of your payments, you will not only earn some great rewards but also give yourself added convenience. So take advantage of discounts, gift cards, and cash back while simultaneously building a strong credit foundation. Getting a head start on improving your FICO credit score will prove invaluable later on.
Of all the cards listed above, the Discover it cards are your best bet. The cash back potential is significant, and the $20 reward for studying hard is well-deserved. There is also no need for a credit score to obtain one.
So discover the world around you! Just be back in time to make those monthly payments.