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Student Credit Cards 101

Updated, November 13, 2017

Let's start with the basics: What is a student credit card? A student credit card is designed under the assumption that the applicant's credit history will be limited or non-existent since he or she is likely a first-time credit cardholder; furthermore, student credit cards often have bonuses or rewards programs geared specifically toward the student lifestyle. They also sometimes have higher penalty fees and lower limits than other credit cards.

Now that you know what we're dealing with, let's talk about who should consider getting one and dig into other student credit card information.

Can a student get a credit card?

Potentially, yes - if you're over 21. Times have changed. It used to be that if you were an 18-year-old college freshman, you'd be walking around campus, and you'd see a student credit card information table with two or three people manning it and handing out free T-shirts, hats, coupons and more to get everyone's attention - and, hey, would you like to sign up for a credit card?

You would, because that sounded like a good idea even though you didn't have a job, but, hey you worked over the summer, so that counts, right? Or maybe you had a part-time job at the dorm store.

So college students, many of them freshmen, signed up for credit cards en masse without really thinking about it, and soon it became common to graduate not only with student debt but credit card debt as well - and lots of it.

So… are you saying college students shouldn't get credit cards?

Not at all. But you learn how to drive a car before you're given free rein on the interstate. If you take a summer job at a restaurant or in an office setting or anywhere, you generally get some training first. You get lessons before you swim. Universities are all about education and for decades college kids were being handed credit cards without any financial education on how to use them. Fortunately, colleges are offering more personal finance courses that provide student credit card information than they used to.

Things began changing in a big way with the Credit CARD Act of 2009 (CARD stands for Credit Card Accountability Responsibility and Disclosure). Now, if you're under the age of 21, you have to prove that you have the independent income (your own job), or you have to get a co-signer, like a parent, who will be responsible for getting the debt paid if you fall behind. The CARD Act also forbids credit card companies from marketing to anyone under the age of 21.

Of course, none of this means that you can't be a college student and still get in trouble with credit cards - but at least it's a bit harder to get in trouble.

Who should get a student credit card?

If you're responsible with money, there are a lot of good arguments for getting a student credit card when you're still in college - the central one being that you can get a jump on building good credit, which will help you get better terms on loans down the road, not just for additional credit cards but a mortgage, a car loan, a business loan and so on.

"I definitely recommend that responsible college students open up a low-limit credit card account in their freshman year," says Lyn Alden, the owner of Lyn Alden Investment Strategy in Atlantic City, N.J. "Spend with it occasionally, never carry a balance and pay every bill on time. That way, by the time they graduate college in four years or so, they'll have a 4-year-old account with a perfect payment history and that will give them a great head start for building their credit score."

Jeff White, a finance writer at the business website Fit Small Business, agrees. In fact, he says: "Every college student should have a credit card, regardless of their financial situation."

Credit card options for students

We've mentioned two ways already, but let's go into a bit more detail about credit cards available to you and the information you need to know about each option: 

Apply directly for a credit card. If you have a job, even a part-time one, you can apply for a credit card and depending on the issuer, you may be granted one. Just do yourself a favor, and only apply if you feel like you're going to have this income for quite awhile. There's a reason for the CARD Act's existence, after all. If you have a credit card, but you don't have steady income, and you use that credit card, you're going to make it awfully easy to get yourself in financial trouble.

Now, if you're denied for your first-choice card, you might want to consider applying for a secured credit card. Those can be excellent vehicles for building credit, but they do require you to put down a cash deposit - and if you're a college student, extra cash may be in short supply.

Ask a parent to co-sign a credit card for you. You and your parents really want to think about this for awhile. Especially your parents. If things go south because you've spent more on the card than you can pay back, your co-signer is just as much on the hook as you are to pay the bill. If they don't have deep pockets, you could get them in a financial mess, which is presumably the last thing you want to do. Again, it really comes down to how responsible you are with money.

Ask your parents to make you an authorized user of one of their cards. This is probably the best strategy - again, provided you're responsible with money. Just as it sounds like, instead of applying for your own, you're able to use your parents' credit card. Your parents may feel a little less pressure in this scenario than they might co-signing a credit card.This is their card, and they can monitor every purchase you make. It helps everyone - it's kind of your version of training wheels for a credit card. You can learn how to use a credit card and get the benefits of your parents' credit score. Assuming they have a healthy credit score, that may help yours, too. It doesn't necessarily make it much easier to get your own credit card down the road, since future lenders recognize that authorized credit card users (you, in this case) aren't actually responsible for paying the bills. But being an authorized user will usually benefit your credit score, especially if up until this point, your credit score and history were basically non-existent.

"By becoming an authorized user on my father's credit card when I was in high school, and then opening my first credit card account right before my freshman year of college, I had a credit score over 800 by the time I graduated," says Alden, who is 29.

Generally, the worst credit scores can be as low as 300. The best is 850.

Are there student-specific credit cards?

Yes, there are. Along with the government and universities, the credit card industry has also risen to the occasion in recent years. Whereas credit cards for college students used to be virtually indistinguishable from a full-time working adult's credit card, other than perhaps a branded university logo on the card, there are now quite a few student credit cards, notably from Capital One, Citi and Discover, that actually take into account who the customer is.

For instance, an adult with a high-paying salary can possibly afford a hefty annual fee - justifying it for all of the rewards points. Generally, these days, a student credit card won't have an annual fee (when you're a college student working a part-time job, who has the money for that?)

Some student credit cards even offer rewards for good grades. Discover it® for Students and Discover it® chrome for Students offer $20 cash back each school year that your GPA is 3.0 or higher for up to the next five years.

Using your credit card: Best practices

You've probably heard this over and over from your parents, but it bears repeating. And, sure, this is important for everyone to consider, but it's especially important to remember for a college student who may often be cash-strapped:

Don't overspend. To help you do that, it's best if you look for credit cards with small credit limits, White says.

And then, he adds, "Use the card to pay for something every month that you're going to paying for, anyway. If you have a utility bill that can be paid online with a credit card, then use yours. It's a great way to build credit by showing that you don't maximize credit limits and that you make payments on time."

Don't get too many credit cards. You may feel as if you can apply for more than one card if your credit is good and you have a pretty decent stream of income. Certainly, every college student's situation will be different, but as a general rule, you'd do well to follow White's advice.

"You don't want to get yourself in financial trouble with a credit card, which is why I don't recommend getting as many cards as you can qualify for," he says.

Even if you get several credit cards and pay off the cards every month, you could see your credit score go down, for a variety of reasons. One of the biggest reasons you could see your credit score drop is due to what's known as the credit utilization ratio. Let's say you have a credit card that you're often getting close to maxing out - say you have a $500 credit limit, and you spend about $480 a month on it. To the credit card bureaus, that looks like you're possibly going to get in trouble with your loan at some point. They like to see credit card users borrowing 30 percent or less of the credit limit. If you have multiple cards that you're coming close to the limit on, you look like an even bigger risk.

However, that credit utilization ratio is one reason consumers do get multiple credit cards: to keep the credit utilization ratio down. But, again, you're in college. If you don't have a full-time job yet, your goal is simply to build your credit, so when you get out into the real world, you have a healthy credit score and credit report. Most college students aren't going to need more than one or possibly two credit cards. Plus access to more credit just might be more temptation to spend money you don't have.

Don't sign up for a card that charges an annual fee to use it and read the terms of the card before applying. You wouldn't believe how many people don't know what an APR is. Seek out information on finding the best rated student credit card offers. Read reviews of cards and get the lowdown on perks of various credit cards.

Find credit cards with a low interest rate. This can be kind of tricky. As a college student, you don't have much of a credit history and low rates are typically doled out to consumers with high credit scores. Still, if you can find a credit card with at least a lower interest rate than 25 percent, try to do that. If you don't make your payment within a month, you'll start compiling revolving debt, and you could find it hard to pay it back.

>MORE: Play around with our "Revolving Balance Interest Calculator" so you understand EXACTLY how quickly interest adds up.

That's why White advises looking for student credit cards versus the ones for the general public.

"While you don't plan on getting charged interest rate because you'll pay it off within 30 days, it's still a perfect time to get a low interest rate by getting a special college student card rate, just in case," he says.

Additional info about student credit cards

You should know how they work. Sure, that sounds obvious, and we all know to an extent, but plenty of consumers don't really understand the inner workings of the credit cards. It isn't like you're required to take a test before being given a credit card.

For instance, you'll manage credit cards better if you know…

When to pay. Obviously, your credit card statement has a due date, and you want to be pay by then. But, still, you may need to drill it in your head. Pay by the due date, which is generally 21 to 25 days after your credit card statement's closing date. If you pay before the due date, that's an interest-free loan you've been given. If you miss that due date, then there's interest to pay and possibly a late fee. And while that may seem like math that even a 5-year-old could figure out, plenty of frazzled, harried cash-strapped adults have missed their credit card payment deadline. It's easy to imagine a busy college student forgetting a credit card payment deadline as well.

How credit card bureaus come up with your credit score. You know that paying bills on time is important, and you probably won't be surprised to know that it's the most important factor in how your credit score is scored. But it's not the only factor.

Credit utilization ratio, which was mentioned earlier, is the second most important factor. You can pay everything on time, but have credit cards that are essentially maxed out, and your credit score will be dinged.

And the length of your credit history is the third most important factor, which is why many personal finance experts suggest getting a credit card in college, so you don't leave college, and, say, want to buy a car but are hindered in getting a loan because you don't have any sort of credit history.

There are other factors involved - like if you've applied to a slew of credit card and loan offers, the various inquiries for credit, even if you don't take all of them, can lower your score - but the factors above are the most significant to be aware of.

>MORE: Don't just wonder! Find out "How do credit cards work?"

Be aware of the fees that sometimes come with credit cards. The annual fee is the main one to be concerned about. You really want to be careful about getting a credit card with an annual fee. Some credit cards have hefty ones, as much as $300, $400 or even more. A consumer can completely justify spending that amount on an annual fee to use their own credit card if they use their credit card in a way that allows them to take advantage of the perks and amenities that come with rewards credit cards (like collecting airline miles). But if you're a college student with a part-time job, or a full-time job that doesn't pay well, you simply don't need a credit card with an annual fee. (Fortunately, as noted, most credit cards designed for college students are annual-fee-free.) And then, of course, student credit card or not, if you pay late, or you spend over your limit, you may see fees piled onto what you owe.

Cash advances should be avoided. Credit cards offer cash advances, where you can go to an ATM and take out cold hard cash. But the interest payments for them are much higher than what you're buying - and the interest starts right away rather than after a grace period which is what's typical with standard charges.

So you may wonder, why do credit cards offer cash advances if they're so bad, and why would anyone take one?

Well, you could be in a situation in which you're in an emergency - your car is broken down somewhere and you need money for a tow or a mechanic, for instance. There may be some rare times when, yes, it's worth it to get a cash advance, and you'll be glad they exist. But as a general rule, stay far, far away.

But a credit card itself? As long as you've studied up on how to use a credit card and have a stream of income to fund your payments, through a job or an amicable arrangement with the Bank of Mom and Dad, there's no reason to not consider getting one.

If you want to start putting all this info about student credit cards to use, start with our editor's picks for Best Student Credit Cards.