There are many advantages to student credit cards. In order to entice a student (who will often be a customer for life), banks will frequently charge lower interest rates and fees (if indeed any annual fees are charged at all). On the other hand, since a student will usually have no credit history, they will generally have a low credit limit. This can be gradually improved on through meeting payments regularly and avoiding a large build up of debt. This will also improve your credit rating for your future, so it can be very worthwhile having a student credit card
during college as it will prove your credit worthiness in later life.
When shopping around, there are certain things to look for. In particular, many banks offer long introductory periods where little or no interest is charged. As long as the student credit card is used carefully, this can be treated as an interest free college loan. Alternatively, you can look for the lowest long term APR (Annual Percentage Rate) to see which student credit card offers long term value. Some students opt for a prepaid student credit card.
Such a card is not really a credit card as there is no credit offered, since money is pre-loaded onto the card. A prepaid card means a student is less likely to end up in debt, but equally is much more constrained in a financial emergency where they cannot borrow. Decide on the plan you’d like and then look for the best possible value within that category of student credit card. With only a little effort you should be able to find good value.
Having a student credit card can be hugely beneficial to the student. Not only does it give a certain sense of financial independence (particularly in an emergency, a student can look to credit rather than their parents), but it teaches them about the financial system, and the importance of budgeting, which can help avoid building up debt. Student credit cards are relatively easy to get - almost every student can qualify for one, so they are an excellent way to get an introduction to the world of credit. A student credit card also gives a sense of security – should there be an emergency, at the very least you won’t be in need as long as you have a student credit card!
The major dangers of a student credit card are associated with the student being generally a novice in the world of finance. For one, they may be ripped off with high charges and rates on the student credit card they apply for. For this reason, it is worthwhile spending time finding the right card for you, and seeking advice from parents, or more experienced people. Second is the temptation to overspend on the credit card. Many students will have had no experience of credit in the past and will be tempted to use their student credit card for everything.
This can lead to losing track of spending and ending up massively in debt at the end of the month. In the US, students have an average of $2,200 debt before they even graduate. This can be difficult to deal with, so it is important to exercise restraint when using the credit card. The main thing to remember when using a student credit card is to treat it like cash. You will have to pay the bill at the end of the month, so if you don’t expect to have £200 by then, do not spend that amount of cash. By following a few budgetary rules, it is relatively easy to build up the kind of discipline necessary.
In summary then, credit cards for students can be a great help to easing the financial burden they are under, but carry with them the risks that all credit cards carry. It is the student’s responsibility to ensure the credit card is used intelligently and with restraint, but if it is used wisely, a student credit card can be a useful tool in getting through college.