Additional tips and tricks
There are other ways you can make the most of these student credit cards. Some involve pairing them with other credit cards that balance out the shortcomings. Other tips include ways to fully utilize existing rewards and services. Here are a few additional tips and tricks for each card.
Discover it® for Students
As a Discover it® for Students cardholder, you have access to Discover Deals, an online shopping mall featuring deals from a variety of retailers. You could stand to earn an extra 5% – 20% on any purchases you make from over 200 participating retailers. That could include necessary school materials, restaurant deals, or just a night out with your friends. If you’re a Discover cardholder, it’s worth your while to keep up with the deals available on Discover Deals.
Discover it® chrome for Students
When it comes to Discover it® chrome for Students, it might be easy to overlook the benefit of having access to free FICO® Credit Scores and tracking. The truth, however, is other services will charge you upwards of $300 a year for this same luxury, and Discover offers it to students for free with this card. If you really want to get a better idea of your spending habits in order to build good credit, use this free and invaluable tool.
Journey® Student Rewards from Capital One®
With the Journey® Student Rewards from Capital One® card, you get free access to a credit-monitoring service called CreditWise, which is invaluable to any college student looking to build credit. In addition to monitoring your credit score, you will be able to gain valuable insight into how your purchasing impacts the score and what you can do to improve it. Since a good credit score can open the door to so many important purchases down the road, it pays to take advantage of this offer.
Citi ThankYou® Preferred Card for College Students
Consider using your Citi ThankYou® Preferred Card for College Students with Amazon.com. On Amazon, your points are typically valued at 0.8 cents. However, when you register this card with your Amazon account, you can select “pay with points” and receive a statement credit for the points you used. This method also works for a number of other businesses and is a fantastic way to make the most of your points.
Student credit cards 101
According to a recent post by Kristen Kuchar on the topic of students’ common money mistakes, she reported that the average college student can accumulate as high as $3,000 in credit card debt. Not surprising when you think about how freeing the college environment can be. It’s a brand new world and there’s lots of things to buy – both essential and, perhaps, not so much. Of course, this does not mean credit cards are bad or should be avoided. In fact, the risk of going into credit card debt is often justified by the inherent value and opportunities made possible by establishing a positive credit history.
To better understand how these cards work for students, we must first start at the beginning. The Credit Card Act of 2009 stipulates that a student of 18-21 years of age may qualify for a credit card if one of the two conditions are met:
- A parent, guardian, spouse, or another adult is willing to co-sign
- You submit proof of income and financial history proving a full-time income (or even a part-time income that’s sufficient enough to pay the balance each month).
When you need a parent to co-sign
If your credit history is too thin or you don’t have enough income to qualify for a card on your own, you may need a parent to co-sign for your first student credit card. This arrangement can help you in the following ways:
- Parents with good credit can help you qualify for a card that will allow you to begin building your own positive credit history.
- Sharing an account with a responsible parent allows you to lean on their guidance as you learn to manage credit for the first time.
- Since both the student and the parent’s credit activity on the card is reported to credit reporting agencies, both parties can benefit from each other’s responsible use.
Co-signing risks for parents
There may be several benefits to having a parent co-sign for a student credit card, but there are also risks for both the parent and the student.
- Parents who co-sign aren’t just helping their children qualify for a credit card. Co-signing also means that both parties will be held mutually responsible for all debts incurred.
- Certain credit factors, such as high utilization, can negatively impact a parent’s credit score.
- Shared accounts that go into default can negatively impact your credit score the same as accounts that are held privately. Both parties will also be pursued by collections.
- The Credit Card Accountability, Responsibility and Disclosure Act, also known as the Credit CARD Act, requires students to get written permission from a parent for any credit line increase until they turn 21. After they turn 21 however, students can apply for a credit line increase without their parent’s knowledge or consent, which could increase their overall liability.
Alternatives to co-signing
If parents would rather not co-sign for a student’s credit card application, there is the alternative of adding an adult child as an authorized user to an existing card account. In some ways, this can even be better as far as easing someone into the seemingly complicated world of credit cards. Students will still have access to a credit card for emergency use and parents are able to better supervise the financial decisions their child is making. This can help parents give specific financial advice to their child and, being an authorized user adds to a student’s credit history.
How do credit cards work?
A credit card actually provides a short-term loan. A less-pleasant word for a loan is debt. When you purchase lunch at a restaurant with a credit card, the credit card company pays the restaurant right away on your behalf, then gives you roughly a month to pay them back. You are legally bound to pay back that loan.
This is where the situation gets tricky. If you fail to pay your credit card balance in full each month, your card issuer has the right to charge an incredible amount of interest on the balance of money you owe. In many cases, and depending on your interest rate, that means that your $12 lunch at Applebee’s could end up costing you $15, $20, or even $30 over time. However, if a credit card is used properly, it can be an interest-free loan. You simply need to learn to pay your balance in full when you receive your credit card statement each month, or before. Even better, through rewards accumulation, you can actually be “paid” to use this loan.
Lesson: Use your credit card the same way you would use money in your bank account.
Financial concepts students can learn from credit card usage
Although there are certain risks involved when you apply for any kind of credit, the pros often outweigh the cons. After all, having the opportunity to prove you are creditworthy is the only way to begin building a positive credit history, and you can’t do that without establishing credit in the first place. Even better, tiptoeing into the world of credit with a student card can teach students about some of the broader concepts surrounding proper financial management.
More than any other financial product, a credit card can teach a student about three important personal finance concepts:
- Cash flow
- Debt management
- Importance of credit history
Financial Concept #1: Using a credit card to manage cash flow
Cash flow is a term used to describe the act of matching up your actual spending to the cash you have on hand. Imagine your bank account as a bath tub. Think about the dollars you earn flowing into your bath tub through the spout, and the dollars you spend flowing down the drain and out the tub. In order to keep enough water in the tub, you need more water flowing into the tub than draining out.
Now imagine you have $0 in your tub and you need to buy a $5 sandwich today for lunch, but you won’t get your paycheck until Friday. A credit card can help you manage this imbalance in cash flow by paying for your sandwich today, and letting you use money to pay the credit card company 30 days from now — when you have money in your tub.
Using credit to manage your cash flow may not present a problem in itself, but it can become a slippery slope if not managed properly. If you are unable to “fill up your tub” by the time your bill comes due at the end of the month, you will be forced to carry a credit card balance into the next month. That balance will also accrue interest, which ultimately means more of your money down the drain. This idea leads to financial concept #2: debt.
Financial Concept #2: A credit card is debt
When you first start using credit, it is easy to disassociate your credit card spending with the money you have in your bank account. However, it is crucial that you remember what your credit card balance is – money you owe someone else.
With that being said, it is important to know that debt isn’t always bad. There are times when going into debt may even be beneficial, such as when you buy your first home or need to borrow money for school. Generally speaking, however, credit card debt is not beneficial debt since it usually will not improve your situation in the same ways buying a home or earning a college degree might.
It is also important to remember that any credit card debt you have will eventually accrue interest. There is currently no maximum rate a credit card issuer can charge, but it is common to see rates of more than 20%. That means that, for every $1,000 you owe, you would need to pay back an extra $200 per year.
Financial Concept #3: Credit cards help students build credit history
Financial institutions keep track of all your credit accounts, personal loans, auto loans, and home-loan transactions over the course of your life. They want to know how much you owe and the likelihood that you will pay back your loans. The compilation of this information is called your credit history. From this history, financial institutions create a credit score for you, and this score helps determine whether they will offer you a loan, such as a home loan or auto loan, and at what interest rate.
Having a good credit history is important. Not having any credit history is a negative because the lender will have no idea if you can responsibly make payments on the loan. Even if you don’t think you will be buying a home or a car for a very long time, it’s still a good idea to start building your credit history as early as possible.
If you need credit history to get a loan, how do you get a loan to start your credit history? This is the conundrum that plagues many students. A credit card is one of the best ways to start because they are relatively easy to obtain, can help you show responsibility managing cash flow and making payments on time if you use the card regularly.
How students get into credit card trouble
What makes a credit card quite different from a debit card is you do not experience the immediate effects of your purchase. It’s only after you see that first bill in the mail that you realize you need to pay that back. Sometimes, students make the mistake of getting in over their heads with high interest rates on outstanding balances. In order to help student avoid these and other common mistakes, we’ve put together some examples to learn from:
Mistake #1: Overspending
It is easy to forget you are going into debt when you first start using credit. You simply swipe the card and go on your merry way. Unfortunately, the small purchases you don’t remember making will add up over the weeks and months. If you don’t keep track of your purchases in real-time, you may spend far more than you planned. When this happens, you can easily get whacked with an over-the-limit fee or spiral into credit card debt that becomes unmanageable.
Mistake #2: Spending just to earn more rewards
Many credit cards let you earn rewards points that can be redeemed for merchandise, cash back, or travel. It may be tempting to maximize this feature, but you should only do so with caution. The fact is, spending to earn rewards is never beneficial because your unnecessary spending often costs more than the rewards you get back.
Mistake #3: Making only minimum payments
When you carry a credit card balance into the next month, your credit card issuer will ask you to make a minimum payment. This minimum payment is usually only a small fraction of the amount you owe, which can be tempting if you are tight on cash. However, it is important to remember that the balance you carry over will accrue interest and ultimately cost you more money over time.
For example, let’s say you pay the minimum payment on your card and carry a $500 balance into the next month. If you paid $15 per month with an 18% APR, it would take you 47 months to pay your debt in full. During that time, you would pay $198.34 in interest for the privilege.
Mistake #4: Not paying your bill on time
Since your payment history is used to decide 30% of your credit score, late credit card payments are a huge step in the wrong direction. In addition to negatively impacting your score, you will also be charged a late fee that is generally somewhere between $30 and $40.
Making more than one late payment on your credit card may actually hurt your credit more than not having any credit history at all. If you opt for a student credit card, make sure to pay your payment on time every month if you want your credit score to benefit.
Mistake #5: Using convenience checks or other cash advance features
When you use your credit card at an ATM for a purchase at a store and receive cash back, or when you use convenience checks, you are triggering the cash advance feature of your card. Interest rates for cash advances are high, often around 25%, and usually start accumulating immediately. Unfortunately, many people don’t realize they are being charged so much until they receive their statement in the mail.
All these fees add up and cost you money, which is why you should avoid using these features altogether. Chances are, you have more important things to pay for than hefty interest charges or cash advance fees anyway.
Student budget calculator
The importance of managing your finances cannot be stressed enough during the college years. It really is a brand new world and, for many, this is the first time keeping track of the money without mom and dad. That’s why we put together this interactive budget calculator to help students who are interested in managing and analyzing their finances. Use this calculator to gain a better understanding of where the money is going so you can prepare your expenses for the coming school year.
How can students use a credit card the right way?
If you want to learn how to truly use credit responsibly, it is best to start out slow and easy. You don’t need to rush into using credit exclusively, and would probably be better off making a few small transactions each month until you feel comfortable. Here are a few more tips that might make the transition smoother:
Start small with one card and a low limit
Since the most common credit card mistake that plagues students is overspending, it might be wise to begin the process with only one card that comes with a relatively low credit limit. For example, a student credit card with a $300 or $500 credit limit offers enough credit to let you get the hang of it without offering you so much credit that you risk going far into debt.
This is also why starting with only one student credit card is also a wise choice. If you have multiple cards, it is easier to overspend and end up in credit card debt.
Make small everyday purchases, not extra purchases to get rewards
A common mistake many students make with their first credit card is to deviate from their normal spending habits. Some people get the idea that they need to make exorbitant purchases with their credit card in order to “jumpstart” a decent credit score. Overall, you should never purchase something with a credit card you aren’t capable of paying off within the month. Instead, get used to having that card and make everyday purchases. Accrue some points and/or cash back reward until you are comfortable with your understanding of how your card works.
Understand your spending by analyzing the statement
After using your new student card for your first month, you can use the information you gain to understand your spending better. Unlike when you use cash, using credit creates a paper trail of every transaction you make. This paper trail, and the online budgeting tools the best student credit cards usually offer, make it easier to analyze your real spending and look for ways to improve it.
Online tools can also help you understand key concepts, like the difference between your current balance, minimum payment, and last month’s balance. Last month’s balance is what you need to pay every month in full by the due date to avoid interest charges.
Pay off your balance each month
With most credit cards, you’ll be required to pay off a minimum amount of your outstanding balance. We recommend getting into the habit of paying off your balance in its entirety, every month. By doing this, you avoid getting hit with any high interest rates. It also looks good on paper as far as your credit score is concerned.
One of the major reasons so many people go into credit card debt is from making exorbitant purchases and then only paying the monthly minimum in bills. As a general rule of thumb, you should not be doing that much spending – barring any extreme circumstance. Overall, it’s prudent not to charge anything to your card that you do not have the money – either in checking or savings – to pay off.
And those are just some of the major items to consider when starting out with your student credit card. If you can follow these steps, then you’ve mastered the basics of owning and managing a credit card. Congratulations. As far as education is concerned, learning the proper use of credit is an invaluable lesson and its own reward. And, by getting into the habit of responsible credit use, you’re taking the necessary steps toward building a solid credit history.
If for some reason you cannot get a parent to co-sign for your student credit card, you can also consider getting a secured credit card. The difference between a secured card and other types of cards is that, with a secured card, you are required to put down a deposit as collateral. While this situation may not be ideal, it will usually lead to better results than the alternative, which is not building a credit history at all. If you need to consider this option, check out our post on the best card cards for bad credit.
Student credit card glossary
If you’re new to credit cards, it can take some time to understand the terms, conditions, rates, and fees associated with card ownership. Listed below are some of the common terms used by credit card companies that can help new cardholders better understand credit and make more informed decisions.
Annual Fee: In addition to paying your card’s balance every month, some cards require you to pay something called an annual fee. A credit card’s annual fee comes at the end of the year and must be paid off or else it could negatively impact your credit history. Thankfully, none of the credit cards we’ve covered in this rundown feature an annual fee.
Annual Percentage Rate: The Annual Percentage Rate (commonly referred to as the APR) is the rate at which interest will accumulate if the credit card balance is not paid off each month. The APR is usually determined by the credit of the applicant and the current Prime Rate. The APR on student cards generally ranges from 10.99% to 23.99%. The most important thing to know is that a low APR is better than a high APR.
Introductory APR: Some credit cards will offer an introductory APR that is lower than the standard APR. In many cases, credit cards will offer a 0% introductory rate for a specified period at the beginning of card ownership. For example, two of the top student credit cards have a 0% introductory rate for the first six months. This means that interest will not accumulate on any credit balances during that time. After the introductory period is up, the standard APR will kick in.
Cash Advance Fee: The cash advance fee is a charge associated with getting cash from the credit card or taking out a loan on the line of credit. The cash advance fee for the top student credit cards is $10 or 5% per transaction, whichever is greater.
Cash Advance Rate: When a credit card is used to make normal purchases like gas or groceries, the standard APR will apply. However, when you request a cash advance, a different interest rate will be applied. The cash advance APR on many credit cards for students is roughly 25%. Cash advances are a nice convenience, but you should only use them when no other options are available.
Balance Transfer Fee: The balance transfer fee is a charge applied when you move your balance from one credit card to another. This fee is typically either a set dollar amount or a percentage of the amount transferred. The balance transfer fee on the best credit cards for students is $5 or 4% of the transaction amount, whichever is greater.
Balance Transfer APR: When you transfer a balance to a new credit card, the APR for that transaction is called the balance transfer APR. The balance transfer APR is often higher than the standard APR. With student cards, the balance transfer APR ranges from 10.99% to 23.99%. Some credit cards offer introductory balance transfer rates that work just like a standard introductory APR, but they will only be applied to the balance of the transfer.
Late Payment Fee: A late payment fee is a charge applied to your credit card’s outstanding balance when you fail to make a monthly payment before the deadline. In some cases, with college credit cards, this fee can be waived (for the first time). Other times, the fee may vary from $35 to $40.
Default Penalty Rate: The default penalty rate is the interest rate applied to a portion of the credit balance (or in some cases the entire balance) when a credit card is in default. Some behaviors that can trigger the default penalty rate include missing a payment, having a payment returned for insufficient funds, or exceeding the established credit limit. The default penalty rate is typically the highest interest rate credit card issuers will apply. With student credit cards, the common default penalty rate hovers around 29%.
Overlimit Fee: An overlimit fee refers to when you make a charge that goes over the limit of your line of credit. If you have a student credit card with a credit limit of $5,000 and you incur a total outstanding balance of $5,023, that will incur an overlimit fee. Luckily, it’s pretty easy to avoid getting one of these fees if you’re responsible and diligent with your expenses. Furthermore, none of the student credit cards we’ve covered in this list apply these fees.
Foreign Currency Transaction Fee: When you use a credit card abroad, this can lead to an extra percentage tacked onto the charge. This is known as a foreign currency transaction fee and many credit cards feature these. Some can go as high as 3% per transaction, which can really add up if you’re a student studying abroad. Luckily, there are some cards that waive these fee altogether such as the Discover it® for Students card.
Using a credit card to save for college
While researching student cards, I came across the Upromise World MasterCard®, which uses points to help parents save for their children’s college education. The points can be directed into savings accounts or investment vehicles.
The Upromise World MasterCard® combines elements of money management, building credit together, and long-term savings in one package.
How it works
The Upromise World MasterCard® lets you rack up generous cash-back rewards on all sorts of everyday purchases, including dining, gas, and movie tickets. With no listed rewards caps, this is one of the better rewards programs you’ll find with any credit card, let alone a student credit card. Earn rewards up to 10%, depending on your purchase.
Your rewards get deposited into your Upromise account. From there, you can direct them to a Upromise savings account or a 529 college savings plan for college-related expenses. My colleague, Saundra, and her husband have earned almost $1,000 cash back in less than a year by making the Upromise World MasterCard® their primary credit card.
Spend to accrue cash rewards
Get in the habit of using the card for all of your everyday purchases and paying off the balance. The rewards on this card are almost unbelievable for a student credit card, but you’ll have to plan in advance to maximize the rewards. Purchases from certain retailers yield more points than others.
For instance, Upromise partners with more than 800 online retailers like Best Buy and Macy’s. Rotating offers even let you can even save on certain Amazon purchases. Saundra always checks the Upromise website before making any online purchases to see whether the retailer is a Upromise partner. The site shows her every partner retailer, their rewards rate, and any coupons or deals they’re running to get maximum rewards. If the retailer is listed, she simply clicks through and makes her purchase like usual.
Just using the Upromise World MasterCard® and purchasing through the Upromise website often yields up to 10% cash back. Saundra recently booked a couple of nights at a hotel through a Upromise partner, Orbitz, over the holidays. Orbitz offered 6% cash back through Upromise.com, and Saundra added 5% on top of that by using the Upromise World MasterCard®. That yielded more than $20 cash back on a $200 expense that she would have had anyway.
Upromise also partners with over 10,000 restaurants. Not all restaurants you visit will earn monster rewards, but Upromise has a nifty tool that can help you locate restaurant partners near you.
Save cash rewards and grow your money
Once you get the hang of maxing out your rewards and spending strategically, you’re well on your way to saving more for your child’s education. The next important decision you need to make is how you want to direct your cash back for college savings.
The money you earn from your everyday spending with Upromise partners goes directly into your Upromise account. From there, you can choose to invest your earnings in a high-yield savings account or tax-deferred 529 plan. I am not a financial advisor, so I won’t recommend one course of action over another, but those two options do exist. Saundra and her husband chose the high-yield savings option, offered through Sallie Mae. They maximize their savings even more because Sallie Mae offers a 10% annual match on their Upromise savings.
Use cash rewards for higher education expenses
It’s no secret that college is expensive. One of the largest higher education expenses is school supplies. One way to get around this is to utilize your cash rewards to help pay for those supplies – books, equipment, etc. Another thing you can do is earn more cash rewards by making purchases in categories that earn you cash back. For example, if you need books, you could try to purchase them on Amazon.com and if you get cash back for that category, you can put that toward other expenses. You could also use this money to put a down payment on your student debt.
Get friends and family to rack up points
Let’s face it: College is just plain expensive these days. One of the coolest features of this card is that you can get it for friends and family so they can also rack up rewards for your child’s education. This is perfect for grandparents or a godparent who wants to help out with school expenses. Their rewards can be directed into your child’s education account. Talk about a creative way to help out!
Research the best credit cards for students
Listed below, you’ll find a directory of the most popular student credit cards on the market. I used this directory as a starting point for my research and analysis.
The student credit cards directory is a custom directory that highlights the most important features for student cards and displays important information about each card. The directory is maintained and updated on a weekly basis to ensure it is always current.
Student credit cards directory
There are so many choices for students when it comes to credit cards. Not only that, but each card also offers its own set of perks and caveats. How are you supposed to know which card is right for you? That’s where our student credit cards directory can really help sum it all up. We analyze and stack the best and most popular student credit cards, focusing on features we feel are of overall importance to the cardholder.
It’s easy to sort, filter, or search for the best student credit card for you.
Rewards Tier Level
No APR for 6+ Months
Good Ongoing Rewards
No Foreign Transaction Fee
Credit cards can be a little daunting when you’re first starting out. If you’re a student and you’ve just gotten your first credit card, you might have some questions about our rating methodology. You might also be curious what “rewards rates” and “intro APR” even mean.
Well, don’t worry. We took the time to break down these common credit card characteristics. Take a moment to familiarize yourself so you can choose the best student credit card for your situation.
When you have a card that gives you a certain number of points or a cash back percentage based on your purchase, that’s a rewards rate. While the base rewards rate is often 1%, some of the best student credit cards will let you earn 5% rewards points in rotating categories that change every quarter. The trick to understanding and fully utilizing rewards rates is to select a card with a rate that rewards spending most similar to your everyday spending. For example, if you’re buying your textbooks on Amazon.com, you might want to opt for a card that rewards spending on that platform.
When it comes to credit cards, the amount of money you charge is known as a balance. While you don’t always have to pay off the entirety of that balance by the end of the month, it’s wise to do so in order to avoid high interest rates. That’s where Intro APR is so important.
A lot of credit cards geared toward students feature an Intro APR of 0% for a fixed amount of time. This means that, during that window, you don’t have to worry about incurring high interest on your outstanding balance. Most of the top student credit cards will offer a 0% Intro APR period of 6-12 months.
Ask anyone who has ever had a credit card and most will tell you that, at least once, they forgot to make a payment. It happens to the best of us but, unfortunately, late payments can have a terrible impact on your credit score. Taking this into account, many student credit card carriers acknowledge this and offer something called “error forgiveness.” Just like it sounds, error forgiveness gives student cardholders a second chance when it comes to a late payment. This typically means no immediate or adverse effects to your credit score. Some credit card companies that deal in student cards will even offer to waive the fee on the first late payment.
Financial learning support
Perhaps the most valuable perk of a student credit card are all the supplemental materials offered. Some student credit card carriers will offer cardholders access to informative and helpful visualizations. Many carriers that feature student credit cards also offer free FICO® Score options. This can aid a student in monitoring their credit score and properly managing their finances. Other carriers offer software that makes budgeting so much easier. Since it’s so imperative to build a good score, these support materials are indispensable.