Getting a student credit card is a great way for a young person to start building a solid credit history. But what do you do with the card after you graduate? Can you upgrade, or do you need to cancel it? What kind of effect will that have on your credit?
Learn the answers to these questions and more in our video with credit expert John Ulzheimer.
Hi, I’m John Ulzheimer, a credit expert who contributes to CreditCardInsider.com.
Today’s question is this: What will happen to my student credit card after I graduate?
So what we’re going to talk about today is the possibility of you switching your student credit card to a non-student credit card and the impact, first off the likelihood of that happening and second is the impact of that on your credit.
So, when you have a student credit card essentially it’s almost misleading because it’s still a credit card, it just happens to be marketed to people who are currently in school and they’re going to have certain perks regarding students, that are going to appeal to people who are living the student lifestyle at that time. But a credit card is a credit card is a credit card. It has an opening date, it’s either a Visa, MasterCard, Amex or Discover brand, it’s got a magnetic stripe on the back or a chip in it, and you can use it to buy stuff. That’s a credit card regardless of whether it’s marketed toward students or people my age.
When you graduate it is plausible and possible for you to ask the credit card issuer to convert that card from the student version to a non-student version. Now what does this mean to you?
What it means to you is if you’re able to get them to do so it’s very likely that they’re going to increase your credit limit and in some cases they’re going to increase it considerably. Folks who have student credit cards tend to be younger and they tend to be under 21, so the limits set on those cards are going to be relevant to the amount of income you have, and the income you have is likely going to be almost non-existent, or very very low, and so it’s unlikely that as a student credit card structure that your card had a 20 or 25 or $30,000 credit limit. It probably had something much more modest.
My first credit card, when I was a student back in the dark ages, had a credit limit of $250. So they mitigated the risk obviously of doing some business with someone as young as I was and inexperienced as I was by making it almost impossible to get myself into a lot of credit card debt. When I graduated it converted to a $3500 credit card. So they increased the interest rate by several hundred percent because I had just gone from being a not-working student to a now working non-student and it really has not changed in the past several decades. That’s generally how it happens.
If you do choose to convert off the student card to a non-student card you actually my help your credit scores and same time. So you may actually knock out two birds with one stone by doing this.
Credit scoring models like to see low balances relative to the card’s credit limit. So obviously if you’ve got a credit card with a $500 limit, even modest and minor purchases are going to eat up a large percentage of that credit limit. Think of going and filling up your car with a tank of gas a couple of times during the month and buying groceries once or twice during the month. Well that could be your entire $500 credit limit right there.
However, making the same purchases on a card that’s got a 10, 15, or $20,000 credit limit is almost immaterial because at a ratio, the balance to limit is very very low verses in the student structure in which the balance to limit can be very very high. It’s the same amount of debt, it’s just that the credit limits are so different and credit scoring models would rather see you over here where you have a lot of credit limit and a low balance verses a low balance but also a low of credit limit. So that’s also going to be one of the ways you’re going to benefit from converting the card out of the student environment to the non-student environment.
Another thing to consider is you actually might convert from a non-rewards card to a card that actually has rewards. Most credit cards today have some sort of rewards program associated with it, whether it’s airline miles, points, cash back, statement credit, something to reward you for using the card, however in the student environment, those are actually much more uncommon than in the non-student environment.
So if you’re going to continue to use the card, which most people do and should frankly, they’re a great way to safely spend money, then you’re going to want to start using card when you’re getting something back for your usage, and that’s going to be a rewards card. You’re going to want to choose one probably that has no annual fee, and has great usability so, you know it’s really hard today to find a merchant that doesn’t take one type credit card. Yes, they do exist, but those are atypical and they’re the exception rather than the norm.
So if you’re thinking of converting your student card to a non-student card, I say go for it, because the benefits are clearly going to outweigh any problems that you’re going to have. If you have any other questions pertaining credit or financial topics, then please submit them to CreditCardInsider.com or in the comments section below. Thank you very much for watching and have a nice day.