Credit Card for Students: Is Getting One a Smart Decision?

According to child trends, in 2018, 50% of all youths in the United States aged between 16 to 24 years were employed either part-time or full-time. Only 9% of youths in school were not employed.

While some students look for jobs mainly to earn extra money, having an income also enables them to apply for a credit card for students and build a good credit score.

In addition, students can use a credit card at gas stations, to buy groceries, and much more. If you wonder if having a credit card at this age is a smart move, here is what you need to know about a credit card for students.

How Much Income You Need

Though the Credit CARD Act of 2009 states that any student under the age of 21 must prove that they have enough income before applying for a credit card, there is no set minimum income requirement.

Several student credit card companies have very relaxed income requirements when compared to regular credit cards. Some credit cards companies also allow parents to add their children to at least one of their existing credit cards.

This way, the student can benefit from their parent’s credit card and work on their credit score without the responsibility of owning a credit card. Credit card companies mainly determine whether or not a student can make their repayments on time.

These companies consider a student’s disposable income after meeting all their financial obligations such as utility bills, rent, car loans, and more.

Students can qualify for a credit card even if they only make a few thousand dollars yearly. As long as your monthly income exceeds your financial obligation, you can qualify for a student credit card.

Choosing the Right Credit Card for Students

Several credit card issuers have special credit card offers for students. Students can quickly get a credit card with little to no credit history.

Student credit cards carry low credit limits and have incentives to ensure that the students use them responsibly.

When looking for a student credit card, it is essential to consider factors such as:

  • Rewards and bonuses
    • Credit needed
    • Interest rates
    • Annual fees
    • Regular APR
    • Ease of application
    • Redemption options

Not all cards are the same; some of the best credit card offers have 0% introductory rates, offers such as points or cash backs, and zero to average credit history.

Take time to know more about the issuers and pick the best option for you.

Student Credit Card Applications: What to Include

Credit card issuers consider a student’s income to arrive at the correct credit line and determine their repayment ability. The good news is that you can include more than the income you get from your full-time or part-time job in your application.

Other sources of income that you can include are:

  • Dividends from investments
    • The money you earn from a freelance job
    • The income you make through a paid internship
    • And more

Several issuers also allow students to include any money they receive from their parents or guardians into a joint or individual bank account.

In some cases, you can also include money that you have leftover from scholarships, grants, and any other financial aid after paying off your tuition fees college-related expenses altogether.

Credit card issuers consider funds from student loans that are not meant to cover a student’s college expenses or tuition fees.

Benefits of a Student Credit Card

It is crucial to know how to navigate the credit system that your country runs on when you are still young. Because of that, there is no better time to learn financial responsibility than when in school.

Though risky, teaching kids that credit card is not free money and there are consequences when they charge it up while they are still in school can save them from misusing they cards when older and incurring huge debts.

Here are some of the reasons why credit card for students is a good idea.

Acquire Good Credit Habits

Credit cards are one of the best ways of learning how to manage money, have a monthly budget, and live within your means while away from home.

Issuers offer students low and manageable credit limits with their first credit card to ensure that they do not incur bad debts.

The low credit limits are meant to prevent students from splurging on unnecessary items or overspending. When a student continues to make regular payments on time and gain the experience they can get a higher credit limit.

Build an Emergency Fund

One of the huge benefits of having a credit card while in college is that you will have money available in an emergency. Whether you need money for a trip, car repair, or a medical emergency, a credit card can be the lifesaver you need.

This is especially necessary if you are away from home. Credit cards for students will also give parents comfort and peace of mind knowing that their children can access cash when they are in dire need.

Sense of Security

Carrying a debit card or large amounts of cash is never safe. You can lose the money, it can be stolen, and your life can also be at risk. In addition, when you lose money, there is little chance of recovery.

With a credit card, your money will remain secure, safe, and protected from any risk. Should you lose your credit card, you can report it stolen immediately, and you will not be held liable for any charges or purchases you did not make.

Students can also monitor their spending habits, access their accounts via a mobile app or website, and report any unauthorized activity resulting from identity theft or credit card fraud.

Convenience

As a student, you may not always have money at hand or the funds you need to buy your everyday items, especially in between paychecks.

A credit card will give you a sense of relief in knowing that you can buy grocery, but school supplies, pay for gas, and more before your next paycheck.

Build and Establish Credit History

It is a good idea to start building your credit score while still in school. When you can use your card responsibly and pay the monthly balance on time, you will show a sense of responsibility and reliability, improving your creditworthiness.

Graduating and joining the adult world with four years’ worth of positive credit history will improve your chances of renting an apartment, securing a mortgage, and any other significant life purchase you want to make.

Favorable Auto Loan and Insurance Rates

Having a good credit score and the experience of using a credit card while in school can come in handy when you want to buy a car. Car loan lenders will use your credit history to determine if they can trust you.

It will be impossible to prove to the auto loan lenders that you can make your payments without a credit card. Good credit can also get you approved for a more favorable loan rate, and you can afford to buy the car you want.

Since car insurance companies also view a person’s credit history when calculating the rates to offer, building good credit while in school will also help you secure better insurance rates.

Better Rental Appeal

When you graduate and are ready for the next phase of life, you will have to move out of your college dorm or parents’ house and rent your own apartment. While not all landlords check a tenant’s credit score, several landlords do.

Such landlords always want to ensure that the renter is reliable and can afford to pay the monthly rent. If you have a poor credit history, no history at all, or short credit history, you may have to get someone to cosign your lease.

Enjoy Cardholder Incentives

Credit cards come with several bonuses, perks, promotions, and more. You can have an opportunity to earn your cashback in some categories or qualified purchases.

One of the expected benefits of having a card is 0% APR for the first year, which can help a student learn financial responsibility.

Such incentives will not only help you be more responsible but give you a chance to save money as well. Some credit cards give students the ability to donate to their preferred charities and win or apply for scholarships.

Better Student Loan Rates

Gaining experience using a credit card and having a good credit history can help you qualify for a better student loan refinancing rate or private student loan rates.

Several student loan lenders offer interest rates based on credit history. This means, the higher your credit score, the lower the interest rate and vice versa.

Cons of Student Credit Card

Although there are several benefits of having a credit card while in school, it is crucial to know that, you may fail to enjoy these benefits if you do not manage your account correctly.

Though minimal, some of the disadvantages of getting a student credit card include:

Getting Trapped in Debt

As much as student credit cards do not come with extensive lines of credit, students are still at risk of debt, especially if they fail to manage their finances well.

If you have a balance and only make the minimum payment each month, you can take years to get out of debt and pay more interest.

Poor Credit Score

Having debt never reflects positively on one’s credit score. When you fail to make your monthly payments on time, you will ruin your credit score, which can take several years to rebuild. Remember, just one late payment can destroy your credit score.

Ways to Build a Positive Credit History

While it is a great idea to have a credit card while in school, students should ensure that the credit limit on their card is within their financial ability. It may be ideal for parents to teach their children how to manage finances and build a positive credit history.

The principles of good credit card use are very easy to follow. With some extra work and discipline, a student can use their card well, build a positive credit history, and have the finances they need to thrive.

Here are some tips on how you can build a positive credit history:

  • Have a monthly budget
  • Automate your monthly payments
  • Become an authorized user on your parent’s credit card
  • Shop around for the best offers
  • Apply for only one credit card
  • Avoid major purchases
  • Consider getting a secured card

It takes a good financial planner to enjoy the benefits of having a credit card thoroughly. Before applying for a student credit card, you should ensure that you commit to making the monthly payments on time and only spend what you can afford.

Parents who choose to add their children to their accounts are responsible for all the charges they make on the card. Therefore, if the student goes into debt, the same can reflect on their credit score.

On the other hand, if the parents have good credit behavior and history, it will boost the student’s rating.

Best Option Student Credit Cards

Going to college is a huge and positive life decision, and so is applying for your first credit card. A credit card for students will allow you to build your financial future and gain trust with reputable lenders.

If you have an income and want to start building your credit score, you should consider applying for a credit card. Remember, it is easier to get a credit card while still in college than after you graduate.

Visit our website for more information about student credit cards and other financial tips.


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