What Parents & Students Need to Know about College Credit Cards
Heading to college is a big time in a young adult’s life. Being away from home, learning independence, and understanding responsibility are all big learning curves you or your child will have to work through. So, what about learning financial independence?
For college students who are disciplined spenders and earn enough money to pay the entire credit card bill off each month, getting a credit card can have long-lasting financial benefits. Having a credit card in college means students don’t have to keep cash on hand for all their purchases or always rely on parents as their personal bank source.
Credit cards are more than just convenient for making purchases—they also help establish credit history at an early age. However, because of their convenience and interest rates, college credit cards can also make it too easy for students to get into serious debt. Parents and students need to consider carefully both the benefits and risks of having a credit card before getting one.
What Are the Benefits for Students in Getting a Credit Card?
The convenience of making purchases is high on the list of benefits. Additionally, there is the peace of mind parents enjoy knowing their college student has a card to cover emergency expenses that might exceed the student’s stash of cash.
Many credit card companies offer additional card benefits like cashback and travel rewards. These benefits can genuinely help college students on fixed budgets get the most out of every credit card purchase.
But perhaps the best benefit of having a college credit card is that it jump-starts the student’s credit history, which is essential for their financial future. How students manage a credit card impacts their credit score. When they graduate and are trying to get a job, an apartment, or a loan, their credit score will be an important factor.
What Are Some Risks of Getting a Credit Card in College?
The most obvious risk of having a credit card in college is that students may overspend and not be able to pay off the card in full each month. Even if they pay off the minimum amount each month, students can quickly build up significant debt because of the interest charged.
Going into credit card debt not only gets expensive—it can also negatively affect your credit score. Making payments on time and using a low portion of your available credit are two important ways to build good credit. Carrying a large balance on your card can result in a high credit-utlitization ratio and lower credit score. Having a low credit score in college has the potential for students to start their adult lives on poor financial footing. A low credit score can make it harder for students to get an apartment or take out a loan, or only qualify for loans with high-interest rates.
What to Look for When Choosing a College Credit Card?
Because college students are new to using credit cards, good credit cards for students are those that have a limited credit amount, no annual fees, and low interest rates. To take advantage of trying to start a solid credit history, students should select a card company that has benefits that suit their specific needs.
Students who plan to go abroad should consider a credit card that is widely accepted in foreign countries, and that does not charge foreign transaction fees. These fees mean paying more on every purchase made abroad, which can add up over a semester. Also, make sure the card is chip and PIN capable since most countries require it.
How Do Students Apply for a Credit Card?
Applying for a credit card is relatively simple, and students can apply for either a secured or an unsecured card. The difference is that the secured card requires a small deposit. That deposit protects the bank or credit union from loss and will be returned to the student after the card account has been paid in full and closed. Whether applying for a secured or an unsecured card, it’s important to note that there’s a federal regulation that requires anyone under the age of 21 to apply with a written application and not online.
Another way for students—particularly those who are unemployed—to apply for a student credit card is to get one jointly with a parent or another co-signer. This arrangement means that the responsibility to pay the monthly bill on time is shared.
A third option is, instead of getting a credit card all on their own, students can ask to be added as an authorized user to a parent’s credit card account. The student would be issued their own card for that account, plus, the student’s credit history would also be affected by the account holder’s credit history. If the account holder has a long and healthy credit history, this arrangement can be a great way to start a student out with a good credit score.
Still Unsure Where to Start?
We get it—there are a lot of options available out there when students are looking for a credit card. If you’re unsure, we recommend considering the relationship that they’ll have with the issuing institution. Sometimes working with a local community bank or credit union may offer the best options. For example, Lanco FCU offers both credit builder and share-secured cards to help students to get a good start on building their credit history and score.
To learn more about student credit cards or to apply for one, college students and their parents should contact Lanco FCU or call one of their lenders today at 888-318-4222.