What is a Student Credit Card

Whether you’re borrowing money for a home, a vehicle, or a cheaper interest rate on a credit card, your credit report and score play a major part in your financial life. You generally don’t have enough financial history to generate a credit report if you’re young and still in school. According to the Consumer Financial Protection Bureau, 26 million Americans, or 11% of the adult population, are credit invisible, which means they have no record with major credit agencies or have credit histories that are too restricted to be scored.

Getting a credit card and making regular payments may help you improve your credit score, but getting accepted may be difficult. Student cards are one option available to college students.

What distinguishes student cards from ordinary cards? We’ll explain and provide you with the information you need to choose the perfect card for you and start establishing good credit.

Key Points

  • Twenty-six million Americans, or roughly 11% of the population, have no credit history.
  • A student credit card, which allows you to develop credit while you’re still in school, is one method to do so.
  • No security deposit is required, unlike secured credit cards.
  • Cashback, airline miles, and other benefits are available.
  • To prevent interest costs, make it a habit to pay your debt each month.

What Is a Student Credit Card, and Why Do I Require One?

Student credit cards work in the same way as regular credit cards. They are unsecured, thus there is no requirement for collateral or a security deposit.

The main distinction between student credit cards and conventional credit cards is their eligibility requirements: student credit cards are created exclusively for college students, and applicants with no credit history can qualify for one. A student credit card issued by a bank or credit union can be obtained whether you are a part-time or full-time student.

You are more likely to qualify for a student credit card as a college student than for other types of credit, such as personal loans or vehicle loans. A student credit card, when used responsibly, may be a valuable tool as you finish school, allowing you to pay for required costs while also building credit.

Some credit card companies will allow you to move your account to a regular card when you graduate. If this occurs, you will most likely be eligible for a larger credit limit.

Three reasons why you should acquire a student credit card

Improve Your Credit

As a college student, you most certainly haven’t had the opportunity to establish your credit. Your credit history and credit score have a large influence on your life, influencing anything from getting approved for an apartment to purchasing a car.

When you create a student account, you are given a credit line, which serves as your spending limit. That credit line raises your available credit, which is equal to your credit line less any existing amounts. If you keep your balances low, you will lower your credit utilization ratio, which is the percentage of a borrower’s total available credit that is presently being used, a criterion that accounts for 30% of your FICO credit score.

As you begin to use your card and make payments, you establish a payment history, which accounts for 35% of your credit score. When you make your monthly payments on time, you create a strong credit report.

In case of an emergency, keep a credit card handy.

You’re driving home when your tire blows out. A family member falls ill, and you must return home immediately. Whatever the circumstances, unexpected costs might occur at any time. You can easily cover such charges if you have a credit card. Depending on where you reside, emergency services, such as towing firms, may require you to pay with plastic, so having a credit card adds an extra layer of security.

Earn Bonuses

You can earn rewards on your purchases with a student credit card. The Discover Student Cash Back card, for example, allows you to receive 5% cashback (up to a quarterly limit) on Amazon.com orders, grocery shops, restaurant meals, petrol stations, and select PayPal transactions. You may also get 1% cashback on all other purchases.

Remember that incentives are designed to entice you to spend more money. Be astute! Use your credit card only for required purchases to minimize interest charges and needless debt.

Risks of a student credit card

Student credit cards, like any other type of debt, have downsides. They typically have high annual percentage rates (APR), so if you spend more than you can afford to repay by the due date, you will be charged interest. These interest rates are generally about 20%, so charges on outstanding accounts add up rapidly.

The main concern is that credit cards make it so simple to buy things, which may encourage you to make poor financial judgments and buy things you can’t afford.

Create a budget based on your monthly cash flow and spending to establish financial discipline. Use your credit card only for required expenditures, and always pay off your amount in full each month.

Getting a credit card

If you use a student credit card wisely, you can build credit and obtain emergency funding. If you decide to apply for a credit card but aren’t sure where to begin, take a look at our top recommendations for the best student credit cards in 2021.