As a student, you may find that you need additional money at times to help bridge gaps in cash flow. Chances are that you work during the summers, but sometimes need a bit of extra money to see you through the rest of the year. Credit cards are a great way to have a form of revolving credit that you only pay for if you use. In addition, having a student credit card can help you build credit before you graduate. This can greatly improve your credit score and increase your chances of being approved for other credit cards, loans, or mortgages once you complete school. Students who responsibly use a credit card while they are at school are positioned much better than their peers when they graduate. The key to this is being responsible with your card, spending within your means, and choosing the right card for you.
Unlike normal credit cards, student cards can be quite easy to get when you’re in school and have a lack of credit history. Lenders understand that you may not have any credit history as you have only just become an adult. In addition, many of these cards have interest free periods, or low-interest rates in general. At the same time, there are many predatory lenders that target students with easy-to-acquire credit cards which then end up costing them in the future. For this reason, it is recommended that you always use an established lender, or a large bank, for your student credit card. This article will overview what you should be looking for when deciding on a student credit card, as well as the advantages and disadvantages of acquiring one of these types of cards.
What to Look For
When deciding on what student credit card to opt for it’s important to consider three primary factors: interest rates, annual fees, and interest format.
- Interest Rates – One of the primary advantages of a student credit card is their typically low interest rates. Some predatory lenders will attempt to sell you cards with higher interest rates, or rewards cards that also include higher interest rates. As a student with limited income, it’s important to make sure you opt for as low of an interest rate as possible. A good interest rate for a student card lies between 10-15 percent APR.
- Annual Fee – An annual fee is a yearly fee you pay to your lender for the privilege of having your card. As a student, the best cards don’t have annual fees, so steer clear of lenders with annual fees on their cards.
- Interest Format – Different lenders use different types of interest calculating formats. Some make you pay interest on whatever balance you have not paid off by the end of the lending period. Others use other calculations, such as the average balance you have throughout the billing period. You’ll want to opt for a lender that tends to only charge interest on your remaining balance as it works out cheaper in most instances.
The primary advantages of student credit cards lie in your ability to build credit in college. In addition, they are typically given at a much lower rate than traditional credit cards and without annual fees. If used properly, they’re an awesome way to help you bridge financial gaps during school terms.
There are two primary disadvantages of getting a student credit card. The first is that you don’t collect any rewards points or miles, as the low interest rates and high risk status of your borrowing situation make it unfeasible for lenders to offer perks. The second is that you are potentially putting yourself in a situation to accumulate credit card debt. While these cards are considered low-interest, all credit cards have high interest when compared to traditional loans. It is important that you only get a credit card if you know that you will be able to pay off in a relatively quick timeframe.
Before applying for a student credit card, you should properly consider the amount of money you can afford to spend and pay off. It may sound easy, but paying back credit card debt is extremely hard when you’re studying on limited income. You don’t want to be trapped in a cycle. This being said, if you’re a responsible borrower, it’s a great way to start generating a credit history for a relatively low-cost.