Should college students have credit cards?
College is a time of newfound freedom and responsibility for many young adults.
And, for many students, the excitement of exploring new subjects and finding the path to your career also comes with the challenge of managing finances—whether it’s finding ways to fund your college classes or pay the rent.
So, it’s not uncommon for college students to consider adding a credit card to their wallets.
While beneficial when used in moderation, credit can be a slippery slope for students. And if they aren’t careful, they could find themselves in hot water when it’s time to pay the bill.
So when should college students consider opening a credit card? And when they do, does a student credit card make the most sense? Let’s find out.
What is a student credit card and how does it work?
A student credit card is a type of credit card designed specifically for college students who may have limited or no credit history. These cards often come with features and benefits tailored to students' financial needs.
As with traditional credit cards, one of the primary purposes of a student credit card is to help students build their credit history.
With prudent use of the card—such as making on-time payments and keeping balances low—younger people can up their credit scores before they need credit for bigger purchases like a home.
Some student credit cards also offer rewards, like cashback, points, or miles, which can provide benefits for everyday expenses. Additionally, many student cards come with educational resources to help you understand credit management.
How student credit cards differ from traditional cards
In addition to their unique features, student credit cards differ from traditional credit cards in a few significant ways:
- Eligibility: Student credit cards are typically available to college students who are at least 18 years old. These types of cards are specifically designed for those who may not have a significant income or a well-established credit history — and in most cases, you need to be a student enrolled in a certain amount of college classes to get one.
- Credit limit: The credit limit on a student credit card is usually lower than that of traditional credit cards. Limiting access to large credit lines helps students manage their spending and reduces the risk of accumulating high levels of debt.
- Interest rates: Due to the risk associated with less experienced borrowers, student credit cards may have slightly higher interest rates than other cards.
- Rewards and perks: While some student credit cards offer rewards, they usually have more straightforward rewards programs compared to premium credit cards. The rewards may cater to student spending habits, such as cashback on dining or groceries.
Why college students should have credit cards
- It helps build credit history: One of the key advantages of having a credit card in college is the opportunity to start building your credit history. Building a positive credit history early on can open doors to better financial opportunities in the future, like getting approved for loans, renting an apartment, or even landing a job.
- It can come in handy for emergencies: Having a credit card can be a lifesaver in emergencies. Whether it's a sudden medical expense or a car repair, having access to a credit line can provide peace of mind. Additionally, credit cards are a convenient way to make online purchases, which can be particularly useful for buying textbooks, school supplies, or even ordering food.
- It offers the opportunity to earn rewards and perks: Many credit cards come with rewards programs that offer cash back, airline miles, or discounts on purchases. For responsible cardholders, these rewards can provide valuable savings over time. And, college students can benefit from these perks when making necessary purchases like textbooks or groceries.
The downside of student credit cards
- There could be a temptation to overspend: One of the biggest concerns with credit cards is the temptation to overspend. Having a credit card can create a sense of financial freedom, but it's essential to remember that you'll eventually need to pay off the balances, often with interest. Overspending can lead to unmanageable debt.
- The interest can accumulate quickly: Most credit cards come with relatively high interest rates, especially for those with limited or no credit history. Carrying a balance on your card can quickly accumulate interest, making it more challenging to pay off debt.
- You can damage your credit if you aren’t careful: Missing payments or making late payments can negatively impact your credit score. This can have long-lasting consequences, affecting your ability to secure loans or favorable interest rates in the future.
When it makes sense to get a student credit card (and when it doesn't)
There are a few times when it makes sense to get a student credit card — and a few times it may not.
Keep these in mind as you decide whether a student card is right for you.
When it makes sense:
- When you’re building credit: If you want to establish a credit history and start building good credit habits early, a student credit card can be a valuable tool.
- For emergencies and convenience: Having a credit card can provide a safety net for unexpected expenses or emergencies, making it a sensible choice for students who want financial security.
- For managing expenses: Student credit cards can help you track and manage your expenses more effectively, especially when making online purchases or paying for school-related items.
When it doesn't make sense:
- If you’re tempted to overspend: If you know you have trouble controlling your spending and fear you might rack up debt quickly, it's wise to hold off on getting a credit card until you develop better financial discipline.
- If you’re already in debt: If you're already dealing with substantial debt or have a history of late payments, it may not be the right time to take on additional credit card debt.
- If you have a lack of income: If you don't have a source of income or the means to pay your credit card bill in full each month, it's best to delay getting a credit card until you can do so responsibly.
Tips for responsible credit card use in college
If you decide to get a credit card while in college, it's crucial to use it responsibly. Here are some tips to help you navigate the world of credit cards wisely:
- Choose the right card: Look for a student credit card with no annual fees, a low interest rate, and rewards that align with your spending habits.
- Set a budget: Create a monthly budget that outlines your income and expenses. Stick to it to avoid overspending.
- Pay on time: Always pay your credit card bill on time to avoid late fees and damage to your credit score.
- Keep balances low: Try to keep your credit card balance below 30% of your credit limit. This will help your credit utilization ratio and positively impact your credit score.
- Monitor your credit: Keep an eye on your credit report to ensure there are no errors or fraudulent activities.
- Avoid cash advances: Cash advances typically come with high fees and interest rates. It's best to avoid using your credit card for cash withdrawals.
The best student credit cards to consider
There are a few cards that are specifically designed with college students in mind, offering features that cater to their unique needs and financial situations. These cards can be worth considering when you’re looking for a student credit card.
Discover it® Student Cash Back
- Key features: This card offers cashback rewards, with 5% cash back in rotating categories and 1% cash back on all other purchases. Plus, they provide a statement credit for good grades each year.
- No annual fee: You won't have to worry about annual fees with this card.
- Introductory offer: Discover matches all the cashback earned in the first year, making it a great way to boost your savings.
- Credit education: Discover provides resources to help students learn about credit management.
Citi Rewards+℠ Student Card
- Key features: This card rounds up your rewards to the nearest 10 points on every purchase and offers 2x points on supermarkets and gas stations (up to a certain limit). It also has a low annual fee.
- Introductory offer: You can earn bonus points by spending a certain amount within the first few months.
- Points never expire: Your rewards points don't expire, so you can accumulate them over time.
Journey Student Rewards from Capital One
- Key features: This card offers 1% cash back on all purchases, which increases to 1.25% if you pay your bill on time.
- No foreign transaction fees: If you plan to study abroad or travel, this card can be a handy companion without foreign transaction fees.
- Credit building: Capital One provides tools and resources to help you build and manage your credit responsibly.
Bank of America® Travel Rewards for Students
- Key features: Earn unlimited 1.5 points per $1 spent on all purchases, and there are no foreign transaction fees.
- Introductory offer: This card offers a bonus of points if you spend a certain amount within the first few months.
- Flexible redemption: You can use your points for travel-related expenses or as a statement credit.
Chase Freedom® Student Credit Card
- Key features: This card offers 1% cash back on all purchases, and you can earn a $50 bonus after your first purchas
- Credit limit increase: With responsible use, you may qualify for a credit limit increase after just five on-time payments.
- No annual fee: There's no annual fee to worry about.
The bottom line
The decision of whether it makes sense to have a student credit card ultimately depends on individual circumstances and financial responsibility.
While credit cards can provide valuable benefits, they also come with risks if not used wisely.
That’s why it's essential to approach credit cards with caution, maintain a budget, and practice responsible financial habits.