As soon as you enter the workforce or the “real world,” your credit score becomes an important number in your life. Your credit score impacts your ability to get approved for loans to buy a car, or purchase a home. The trick is that in order to be approved for credit, you need credit history and experience. If you can’t get approved without a good credit score, but you need to get approved in order to build credit, how do you build your credit in the first place?
Enter the student credit card. This type of card is designed specifically to help college students build credit now, so they’re ready with a good score when you need it in the future. Read on to learn more about these cards, the benefits of getting one, and how to choose the right one for you.
What Is a Student Credit Card?
A student credit card is a financial tool designed to help students learn more about credit and build a positive credit history. It prepares you to be able to rent apartments, buy a vehicle, purchase property, and get approved for better credit cards later. These cards are designed for those with little to no credit history. That means you can get approved for one easily without having a credit card already. It’s a great option for your first credit card.
The effective use of these cards—paying bills on time, maintaining low credit utilization, and understanding card terms—is great practice for healthy financial habits. When managed wisely, student credit cards help facilitate your future independence and give you a strong financial foundation.
How Do Student Credit Cards Work?
If you’re interested in a student credit card, here’s how the process works:
- Apply or Sign Up. The first step is to apply for your new credit card. To do this, you will have to provide proof of income. This is to ensure that you can pay back what you spend. If you’re under 21, you may need a cosigner if you don’t have your own income. That is often your parent, guardian, or another trusted adult. If you’re over 21, you just have to show income responsibility any way that’s needed. You can include all types of income, including partner income. You’ll also need to prove that you’re a student. Gather the necessary documentation for your application.
- Use for Every Day Expenses. Once you have the card, you’ll need to use the card to keep it active and build up your credit history. One of the most effective ways to use this card is to pay for many of your expenses with it and then pay it off immediately. That way you avoid racking up any debt but you build a strong credit history. You could use it to pay bills, get groceries, and even pay for books and school supplies ‐ all of it works if you pay it off quickly.
- Pay On Time, Every Month. Paying your bills is the final step to using a card well. Try to only spend what you have, so you’re able to pay your balance in full each month. Paying all of your credit card bills on time helps you avoid debt and build a strong credit history.
Benefits of Having a Student Credit Card
A student credit card has the potential to build a strong financial foundation for your future. These are three ways that can happen:
Building a Credit History
As mentioned before, your credit score is one of the most important numbers in your adult life. Having a good one can empower you later in life and give you many more options. For example, you’ll be able to rent more types of apartments, get approved for more loans, and even eventually be able to buy property with a good credit score. If you have a bad one, you’re going to be limited in what you can do in the future and may be denied opportunities you really want.
A student credit card is an easy way to build your score. If you use it well, you’ll have a strong credit score that can open doors for you later in life.
Learning Financial Responsibility
Another perk of a student credit card is that it acts as a sort of training ground for healthy habits. Many student cards have a lower credit limit which is helpful to prevent students from spending money they don’t have. With a student card, you get access to a low amount of credit and can get into the habit of spending and paying it off each month. That can help you learn how to be fully financially responsible for future lines of credit.
Perks and Rewards
Card providers love to reward students who are using their cards well. That means getting a student credit card helps make you eligible for some excellent perks. Some cards will give you a certain percentage of cash back on your purchases. For example, you might get 5% cash back for specific purchases made with services students rely on, such as Amazon.com, grocery stores, meals at restaurants, gas stations, and some PayPal transactions.
Comparing Student Credit Cards
Ready to get your first student credit card? There are a few things you need to consider before diving into one. The first thing is to decide what the right credit card is for you. Here are some tips to help you do just that.
Key Features to Look For
Some good features to have in your card include:
- Low interest rates. Interest accumulates until you pay off the credit card’s balance. Low rates will mean less interest accrues.
- No annual fee. Some cards charge you a fee every year to keep your account open. A good student card never will. You’ll be able to keep your card with no extra charge.
- Rewards. Look for a card that offers you the perks you want. Consider looking for cards with cashback rewards, especially for purchases that you make regularly.
- No foreign transaction fee. Debit cards and some credit cards charge up to 3% more when you use the card abroad. That can make a student credit card incredibly valuable if you’re looking to study abroad. You’ll be able to use your credit card worry-free.
- Reporting to credit bureaus. Some of the points of a student credit card is to build your credit. That only matters if your credit card is reported to the major credit bureaus that track scores. Make sure your card reports to TransUnion, Equifax, and Experian.
How to Choose the Right One
Here are a few general tips to choose the right credit card for you:
- Think about your lifestyle. Ultimately, you want your credit card to complement your life well. Think about how often you’ll use it and what you plan on using it for.
- Consider your financial goals. What do you want to achieve financially? You may want to consider what ways you can best build your credit to make that happen.
- Look into the Ambition Card. Consider getting the Ambition student credit card from College Ave. This card doesn’t have a credit check to qualify, and there are no late fees or interest charges. Plus, you get cash back rewards on all purchases.
Managing Your Student Credit Card Wisely
Once you have the right card, it’s vital to use it well. Here are some tips for helping you make the most of your student credit card.
Best Practices for Use
- Keep your credit utilization low. Your credit utilization should be lower than 30%. In fact, you’ll want to aim for only 10%. That means that if you have a credit limit of $1,000, you don’t want to have more than $300 in charges on the card at a time.
- Set spending limits. Don’t spend more than you can pay off. One of the most common pitfalls is to go into debt by spending too much on your credit card. Set yourself limits of how much you can genuinely afford to spend on the credit card each month. That can help you build your credit score without hurting your financial future.
- Organize your monthly payments. Set yourself calendar reminders or alarms to make sure you pay your bills on time every time. You can consider doing it after every time you use your credit card or just set up a monthly time to pay it all off at once.
Understanding Credit Scores
Your credit score is a number from 300-950 that tells lenders about how well you use credit. The higher the number, the better your credit score. Thirty-five percent of your score is determined by your payment history. That means making payments on time has a huge impact on your credit score.
Paying everything off in a timely manner is one of the best things you can do for your credit future.
Conclusion
Overall, a student credit card is a valuable tool to jumpstart your financial future. The key is to use it well and make sure you’re never spending more than you have.
With College Ave’s Ambition student credit card, you can build your credit and achieve your education and financial goals.
FAQs
What is the difference between a regular credit card and a student credit card?
The main difference between a credit card and a student credit card is the requirements and credit limits. Student credit cards often don’t require a credit history check to qualify. The cards also have lower credit limits.
A regular credit card will require a credit history and income review to ensure you’re responsible for repaying what you use. They often come with higher credit limits, often anywhere from $500-$10,000.
What is the average limit on a student credit card?
Student credit cards have lower limits. In fact, most are somewhere between $500 and $1,000. That means you can only spend that much on the card at a time. To keep your credit utilization score low, that might mean you only want $50-$100 on your card at a time.
