A crash course in college credit cards

By , CardRatings contributor
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While the costs of college continue to rise, another financial side to the campus equation is in decline -- the use of college credit cards. According to Sallie Mae, the leading student loan provider in the U.S., college credit card use is down from 42 percent from 2010 to 35 percent in 2012. College credit use is down, and consumers seem to be growing wiser in vetting student credit cards for their college-aged children. But why the downward shift?

A few reasons have risen to the top:

  • College students and their families have decided to shy away from credit usage at school, in favor of cash, debit or prepaid cards.
  • Credit card companies have hurt their own cause with aggressive marketing campaigns that overplay the availability of easy credit and downplay the high costs of ample interest rates and onerous credit card debt.

In addition, of collegians that do use credit cards, volume levels are weak, Sallie Mae reports. Thirty-three percent of cardholders on campus had a zero balance in 2012, while 42 percent had a balance of $500 or less. The student loan giant adds that 23 percent of parents step up and pay their college kids' credit card tab.

As students and families continue to prune college credit card habits, what can they do to get the best deal if they do decide to go the plastic route when junior enrolls at alma mater?

CardRatings.com reached out to financial experts, who offer a "boot camp" of sorts for families looking for the best card options at college.

Here's what they advise:

Focus on the interest rate. While there is no shortage of priorities to target when shopping for a good credit card, job one is to focus like a laser beam on interest rates. The goal? Avoid the high ones.

"A credit card, if used responsibly, is a great way for students to start to build their credit," says Trevor Shakiba, a certified financial planner and president of The Shakiba Group, a Houston, Tx.-based financial advisory firm. "Focus on the annual interest rate, annual fees and reward programs which might provide some benefit like cash back. Absolutely avoid any extremely high interest rate cards no matter how great the reward programs sound.

Save it for specific purchases. Credit cards are most useful when they're used sparingly, Shakiba says. "Use it only for specific purchases such as gas, which can paid off consistently each month at about the same amount," he advises. "This will help them build their credit while teaching key money management principles. It's best to treat it like a debit card. Only charge what you can presently pay off."

Explore a prepaid card. Prepaid credit card come with balance limits, usually deployed by parents, that helps guarantee students won't get in over their heads, financially, with credit card debt. "Prepaid credit cards can be useful because they limit spending to the amount loaded onto the card," notes Gail Cunningham, a vice president at Silver Springs, Md.-based National Foundation for Credit Counseling, a consumer financial advocacy group. "Opt for safety and quality. Cards branded by Visa or MasterCard can be used anywhere that network is accepted, and thus are very convenient."

Focus on student cards. And don't take on an annual fee. The best cards are ones that are targeted specifically to students. "These cards generally have lower credit requirements and lower credit limits, meaning less chances the student will get into trouble," says Ken Lin, chief executive officer at Credit Karma, a San Francisco-based consumer credit firm. "The key consideration is looking for something with no annual fees. Credit cards are the backbones of our credit scores. You want to have a card for a long time even if you stop using it at some point. That's why finding a card with now annual fee is ideal."

Used judiciously, student credit card offers can be a big help to kids on campus. But the margin for error is thin, so do your homework before you sign on any plastic-related dotted lines.


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