I’ve heard about student credit cards, but I don’t really know anything about them. Should I get one?
No! – Well, at least not until you understand if and why it would help you to have one, how credit works, and what to expect once you get one. We’re here to help you with that, and are available for any questions you have.
The first step towards getting your own credit card is to understand just what credit is. To put it simply, your credit is your reputation as a borrower of money. Lenders of money, like credit card issuers, use information about your credit to determine how risky it will be to lend you money. The better your credit, the more likely you are to get a credit card or loan with good terms.
Learn more about credit »
There are many ways to establish and build credit, but when it comes down to it there is just one thing to remember: pay your bills on time and in full. If you can follow this simple rule you’ll be able to borrow and pay back money responsibly and confidently, and you’ll be on the right track to an excellent credit score. This includes paying back student loans.
Learn more about how to build credit and the factors that make up your credit score »
Student credit cards are a particular kind of credit card, only available to people enrolled in college or university. They are designed for students with little to no credit history, but they often come with better terms than you would find with non-student cards designed for the same level of credit.
Learn more about student credit cards »
Both credit cards and student loans have an effect on your credit, but they are quite different. The former makes use of revolving loans, while the latter is a type of installment loan, and they have different effects on your credit. There are a few different types of student loans, and several different ways to pay them back. Do you know what kind of loans you’re using? Do you know the best way for you to pay them back when it comes time, and would it be a good idea to start paying back your loans before you finish school? Are you eligible for any discounts or forgiveness programs?
Learn more about student loans and how to pay them back »
1. What Is Credit, And Why Is It Important?
Your personal credit is your reputation as a borrower of money, and it is an indicator of how likely you are to pay that money back. People with the best credit are seen by lenders as very reliable borrowers, likely to pay the money back on time and in full, while those with the worst credit are seen as very risky borrowers who may not pay the money back.
To understand credit, think of a trusted friend you have known for a long time. How comfortable would you feel loaning her $300? Now think of someone you barely trust and just met, and ask yourself the same question.
In the first situation, you see the person as a reliable borrower, likely to pay your money back. But in the second situation you don’t feel quite so comfortable and maybe you wouldn’t want to loan the money at all, or maybe you would make the person promise that they would pay you back $350.
Lenders of money go through a similar process when they consider giving you a loan, but they use your credit reports and credit scores.
Your credit is important when it comes to:
- Credit cards
- Auto loans
- Insurance approvals
You build credit by establishing a history as a reliable borrower, which means taking out loans and then paying them back. This includes student loans; if you’ve begun paying back student loans you’ve already established a credit history.
In general, the longer your history of good behavior, the better your credit will be. If you make late payments, fail to pay your bills, or otherwise prove yourself to be a risky proposition
This information is collected and summarized in your credit reports. There are 3 main companies that release their own versions of these reports, known both as “credit reporting agencies” and “credit bureaus”:
You can get a free copy of your 3 credit reports once per year from AnnualCreditReport.com, a federal website. You can also pay for copies of your credit reports if you wish.
A credit score is a single number that summarizes a credit report. FICO is the most important credit scoring model, used by most lenders, though VantageScore is important as well. Credit scores and credit reports are separate entities, though the scores are based on the reports.
A FICO credit score is composed of 5 different parts:
|Category||Percentage of Score||Quick Tip|
|Payment History||35%||More is better|
|Amounts Owed||30%||Less is better|
|Length of Credit History||15%||More is better|
|New Credit||10%||Less is better|
|Types of Credit Used||10%||More is better|
The FICO scoring model analyzes your credit report based on these criteria and provides a number ranging from 300 to 850. A higher score means that you will qualify for more types of financial tools, like great credit cards, as well as more favorable terms.
Q&A Video: Why Should I Get A Credit Card?
2. How Do You Build Great Credit While Avoiding Credit Card Debt?
The answer to this question is simple: use credit responsibly.
This applies to credit cards as well as student loans, auto loans, medical bills, and other financial relationships. In general, it means not borrowing more than you can afford to pay off and paying your bills on time.
When it comes to credit cards, however, there’s more to learn if you want the best credit score possible. Credit cards are somewhat complex financial tools, and understanding how they work will let you use them effectively to your benefit while constantly improving your credit.
After you understand the basics of credit reports and scores, you’ll be ready to learn about credit cards, the kind of terms they have, and what you can do with them.
The Biggest Credit Mistakes That Students Make
Getting Credit Cards Without Understanding How They Work
Simply put, students would make very few mistakes with credit cards if they understood how they work and how they affect your credit. While there is some mystery around the credit approval and credit scoring process, there is nothing mysterious about using credit cards responsibly.
Credit cards are deceptively easy to get and to use, but they are serious financial tools that will affect your life. There is no licensing process that requires you to pass a test proving you are knowledgeable enough to use a card; it’s up to you to inform yourself about the benefits and hazards of credit cards.
Carrying Too Much Debt
According to a survey by Fidelity, 25% of students who graduated in 2013 carried credit card debt with them, at an average of $3,000 per graduate. This is way too high, especially considering that most students (70%) who graduated that year also left with student loan debt, at an average of over $35,000.
Carrying high balances on your credit cards not only costs you money, it can also negatively affect your credit score.
According to most experts, to get the best credit scores you’ll want to keep your total credit card debt at less than 30% of the total of all your credit limits added up.
So, if you have 2 credit cards that each have a $500 credit limit, your total credit limit is $1,000. This means that you would want to keep your total credit card balance below $300 at the statement closing date.
We recommend paying off your credit card balance in full each month before the due date, especially for students. You should always consider a credit card purchase as being made with your own money from your bank account, which leads to the next mistake.
Buying Things You Can’t Afford
It’s true that credit cards can increase impulse spending, giving some people the urge to spend money they don’t have. The best ways to combat this tendency are to be aware of it, to think of your credit card as being intimately linked to your bank account, and to plan on paying off your credit card bill in full every month.
If you plan to pay your bill every month (or even every week) you’ll be able to easily keep your spending in check when you see your bank account dwindling every time your credit card balance goes up. You’ll soon naturally associate your credit card with your bank account, if you didn’t already.
Remember, credit cards are a type of loan that you will need to pay back. They are not free money.
Paying Only The Minimum Payments
Every month you’ll get a statement from your credit card issuer detailing the previous month’s payments. If you have a balance, you’ll be asked to pay at least a minimum amount, usually a rather small amount.
It’s a mistake to think that you can just pay that minimum amount each month and be worry-free. Doing so will cost you money as your remaining balance accrues interest each month, with more and more building up because credit card interest is compounded. You also might be damaging your credit score by carrying too much debt from month to month, like in #2 above.
Don’t get in the habit of making only the minimum payments and revolving a balance every month. Pay off your bill in full each month whenever possible, and be aware of the consequences that come from carrying a balance.
A good strategy to get a handle on your credit card spending is to check in on your online account several times throughout the month, and make some payments to reduce your balance as you go instead of waiting until the end of the month.
Credit cards are powerful and they can be used in many ways. In many cases, some of the nuances in their terms may need some explaining.
What you’ll learn here:
- How to use credit cards to get the best possible credit score
- How to check your credit reports for fraud
- What the Schumer Box is
- Why you should beware the cash advance
- How much you should spend with your credit cards
- How many credit cards you should have
There are many ways to build credit, as well as several types of credit cards that can be useful. The same principles of responsible use apply to every method.
What you’ll learn here:
- How to check your credit
- Different types of cards that can help you build credit, like secured cards and retail store cards
- What it means to become an authorized user on someone else’s account, and how that can help you build credit
- What it means to co-sign for a card, and if that is a good way to build credit (hint: it probably isn’t)
- How to monitor your credit to be sure you’re on track
- How to reap bigger rewards as your credit gets better and better
3. What Are Student Credit Cards?
After you know what credit is and how to use it responsibly, you can understand how a credit card can help you (or hurt you).
Student cards are a special type of credit card that are only available to students enrolled in college or university. They’re designed for people with little to no credit, so these cards generally come with higher-than-average interest rates.
Don’t assume that you need to get a student credit card just because you are a student – it is possible to get other cards with little or no credit, like secured credit cards, but you also may be able to get a regular credit card, especially if you have established some credit already.
Although the rates may be high, student cards are unique because they tend to offer better rewards and benefits than non-student cards designed for that level of credit. These cards provide a chance to easily establish your credit while earning a bit of cash back or points for purchases, as well as getting the extra shopping protections and insurances provided by card issuers.
Credit cards can help you in many ways. They often provide a surprising number of extra benefits, protections, and insurance plans for yourself and your purchases, and they’re a convenient way to carry money.
Credit cards have a number of features, including your personal information, account information, and information about the card type. Modern cards also include an EMV chip, and may put most or all of the personal information on the back of the card.
Benefits of Credit Cards
- Credit cards are cheap, and many don’t have annual fees.
- Interest can always be avoided if you never revolve a balance from month to month.
- Responsible credit card behavior will improve your credit report and credit score.
- Credit cards provide great portable capacity – how else could you safely carry around $10,000?
- If you lose your credit card you can simply cancel it and call for a replacement. You can’t do this with cash.
- You are not held liable for fraudulent credit card use, so you don’t need to worry about theft as long as you report it.
- Many credit cards offer rewards in the form of points or cash back, providing a small discount for common purchases.
- Additional online rewards portals offered by some card issuers, like Discover Deals or Chase Ultimate Rewards, where you can find significant discounts at popular retailers.
- Credit cards usually provide purchase protection, covering items you buy against damage and theft for a few months, as well as extended warranties and insurance for travel and auto rentals.
- The better credit cards offer concierge services and truly valuable discounts and upgrades at airlines and in hotels, as well as exclusive access to pre-sale tickets and events.
What Makes A Great Student Card?
The best credit cards for students will build credit while costing you nothing, and actually saving you money through rewards and extra benefits.
Look for cards with:
- Lower interest rates (though your options will be limited without much of a credit history – if you never intend to pay interest, this is less of a concern)
- An introductory interest rate of 0% to give you time to get used to the card
- Special allowances like a pass on your first late
- Rewards like points or cash back for the types of purchases you tend to make
- Extra benefits like purchase protection and extended warranties
Q&A Video: What Happens To My Student Credit Card After I Graduate?
4. How Do Student Loans Work?
Student loans come from two sources: the federal government or private lenders.
There are several types, including:
- Subsidized or unsubsidized direct loans
- Subsidized or unsubsidized Federal Stafford loans
- Federal Perkins loans
- PLUS loans
It’s important to know which type of loan you have because they have different grace periods, meaning that you’ll be expected to start paying some back sooner than others.
Does your loan accrue interest before you begin paying it back? If so, it may be smart to start paying them back as soon as possible.
There are a number of payment plans, though you may not be eligible for every one:
- Standard plan: the basic repayment plan, usually with high monthly payments
- Graduated plan: starts with lower payments in the beginning, which gradually increase
- Extended repayment plan: available to students who have borrowed at least $30,000, allows for lower fixed or monthly payments for 25 years.
- Income-based repayment plan: Eligible to students with a partial economic hardship, this plan matches your monthly payments to your income, maxing out at 15% of your discretionary income
- Pay As You Earn plan: Another plan that matches your monthly payments to your income, maxing out at 10% of your discretionary income
- Income-Contingent plan: Determines your payments based on several factors including your adjusted gross income, family size, and total amount of direct loans
- Income-Sensitive plan: Calculates monthly payments based on your annual income, with different lenders possibly using different formulas
Check with your loan issuer/manager for details on your eligibility for these plans. Explore your options, and see how big your monthly payments will be with each plan.
If you can afford it, it’s often a good idea to pay as much as you can each month, decreasing the balance as fast as possible to reduce the overall amount of interest you’ll have to pay. But, if you need to make smaller payments for a time while you establish yourself with a job or other reasons, you can usually get on a plan that matches your income until you can pay more.
Q&A Video: What’s the Different Between Credit Card Debt and Student Loan Debt?
Loan Consolidation and Forgiveness
If you have multiple loans from different lenders you may be able to consolidate them into a single loan. If so, look into what your monthly payments will be like, as well as how long it will take you to repay the entire loan. If you can’t consolidate or don’t want to, focus on the loans with the highest interest rates first.
This could be a benefit if you reduce the interest rates on your loans, but your total repayment time may end up being longer. Also, you could lose certain benefits if your loan is no longer serviced by a particular company.
Loan forgiveness is another option that you may be eligible for. If you work for a nonprofit or government organization, you could be eligible to have your remaining loans forgiven after 10 years.
Eligible organizations include:
- Public education
- Early childhood education
- Public libraries
- Public health services
- Law enforcement
- Public interest law
Student loans are large and you may be dealing with them for quite a while. It will be worth your time to learn all about them.
What you’ll learn here:
- How to check your credit status
- The different types of loans available to you
- The different repayment plans available to you
- Why you may want to consolidate your loans
- If you might be eligible for loan forgiveness
Our Editor Picks for Best Student Credit Cards
The cards on this page have been chosen from the widest possible selection of cards that we could find when the page was last updated on July 29, 2015. Although Credit Card Insider does receive compensation from some card issuers as advertisers, this does not in any way influence our choice of cards or the order that cards appear on the page. We have attempted to determine the best cards in this category, regardless of our advertising relationship with the issuers.
Learn more about how we rate credit and charge cards.
Building good credit with financial responsibility is a valuable lesson you can learn in college, because how you manage that first credit card will help determine your credit score. The higher your credit score, the more opportunities you’ll have. Your credit score can affect your eligibility for apartment rentals, car insurance, cell phone plans and job opportunities. A good FICO score can give you favorable terms on everything from interest rates to auto loans. For more details about our most recent picks, see John Ulzheimer’s recent post on The Insider.
With 0% financing for 12 months, no annual fee, 3% cash back rewards on gas, 2% on groceries (for the first $1,500 in purchases in those categories in each quarter), 1% on everything else—AND a $100 cash rewards bonus for charging $500 in purchases within 90 days of account opening, you can get paid for building your credit– if you play this card’s benefits right! Additional card features include text alerts and mobile banking, and fixed payment due dates, all of which can help you learn to keep balances manageable, and ensure that you never miss a payment. If you have a checking or savings account with Bank of America, you’ll earn an additional 10% bonus for depositing your cash back rewards into the account—making it easy to save money (because you’ll never have to part with it).
Limited / No Credit
- Annual Fee: $0
- Interest Rate: 12.99%-22.99% (Variable)
Quick Card Facts
- 1% cash back on purchases everywhere, every time
- 2% at grocery stores and 3% on gas for the first $1,500 in combined grocery store and gas purchases each quarter
- Choose how you want to receive your cash. Redeem as a direct deposit into a Bank of America® checking or savings account or receive a statement credit.
- No annual fee
- Access to Ultimate Money Skills™ for tips on building credit, budgeting and more
- Mobile Banking and text alerts to keep you on top of your finances
- Fixed payment due date so you'll always know when your payment is due
- As a special bonus, earn a $100 cash rewards bonus after you make at least $500 in purchases in the first 90 days of account opening
This Citi student card offers several features that higher-end cards typically have, but in lesser degrees. These include an introductory 0% APR for 7 months, as well as 2,500 bonus points for spending $500 in the first 3 months. You’ll earn 2 points per dollar on dining and entertainment purchases, such as live performances, movie theaters, sports, and cultural experiences like zoos and museums. There’s no annual fee, and, after the introductory period is over, your purchase APR will become 13.99% to 23.99% (Variable).
- Annual Fee: $0
- Interest Rate: 13.99%-23.99% (Variable)
Quick Card Facts
- Earn 2,500 bonus ThankYou® Points after spending $500 within the first 3 months of cardmembership.
- 2 ThankYou® Points per dollar spent on purchases for dining at restaurants and entertainment.
- 1 ThankYou® Point on other purchases.
- Points do not expire and earn unlimited Thank You Points
- Redeem ThankYou Points for merchandise, travel rewards, gift cards, cash and more
- Travel with ease and enjoy global acceptance with Chip Technology
- No annual fee*
The Discover it® for Students card comes with a 0% interest rate for the first 6 months. It also includes some valuable benefits like one waived late fee if you happen to forget a payment, along with the ability to pay your bill right up until midnight the day it’s due. You’ll earn 5% cash back on revolving categories and 1% cash back on all other purchases.
Update June, 2015: There is currently a promotional offer from Discover to double the cash back you earn after 1 year of usage, making this one of the most rewarding student cards available. This offer is only available to new cardholders and could be discontinued at any time.
Thanks to a partnership with Amazon, you can easily apply the rewards you’ve earn with the card towards your Amazon purchase at checkout, making it easy to put your cash back towards any textbooks you might order from the site.
- Annual Fee: $0
- Interest Rate: 12.99% – 21.99%* Variable
Quick Card Facts
- Double all the cash back you've earned at the end of your first year automatically - only for new cardmembers*
- 5% cash back in categories that change each quarter like gas, restaurants, Amazon.com and more-up to the quarterly maximum when you sign up.* 1% cash back on all other purchases.
- No annual fee. No overlimit fee. No foreign transaction fee. No late fee on first late payment & paying late won't raise your APR.*
- Free FICO® Credit Score on statements, online & by mobile app.* 100% U.S.-based service any time. Text alerts when payment is due & a free mobile app to stay on top of your account.
- New Freeze ItSM on/off switch lets you prevent new purchases, cash advances & balance transfers on misplaced cards in seconds by mobile app & online.*
- Each Discover purchase is monitored. If it's unusual, you're alerted by e-mail, phone or text-and never responsible for unauthorized purchases on your Discover card
- 0% intro APR* on purchases for 6 months, then the standard variable purchase APR of 12.99% - 21.99%.
- *See rates, rewards, free FICO® Credit Score terms & other info by clicking “Apply.”
Credit Card Insider Scholarship
Thank you to everyone who submitted applications for the Credit Card Insider Scholarship by the April 1, 2015 deadline. We have selected the winning applicants and notified them via email.