If you’re a college student, a credit card can be a great way to learn the ins and outs of using credit wisely while also building a nice credit rating. But it’s important to keep in mind that just because your card has the same logo as mom’s or dad’s, that doesn’t mean all the terms are the same.
While credit card companies are willing to offer you a credit card, they still see your student status as a risk. You likely have a small income – if any – and scant experience using credit. Because of these factors, the issuer of your student credit card is probably going to make a few tweaks to the terms for your card. These often include:
- Larger annual fees
- Higher interest rate for charges made to the card
- Lower credit limit
- Scaled-down cash-back offers, reward points or other benefits
- Requirement of a co-signer
If you’re going to use a student credit card – or any credit card for that matter – you need to have a plan in place for how you’re going to use it. If you’re like most college students, your best course of action is to have one regular, fairly small expense that you pay with the card. An example would be a monthly trip to the grocery store.
It’s also vital to know all the particulars of a credit card before you fill out any paperwork or pixelwork. High interest rates or low limits aren’t necessarily deal breakers if you are planning on using the card judiciously and paying it off each month. The annual fee, though, is something generally worth paying attention to since it is a cost you will definitely have to pay.
Many websites allow you to compare various student credit cards, so use their side-by-side charts to identify cards with low fees and other favorable terms. Also be sure to contact your local credit union or community bank to see what they offer. Avoid signing up for a card on-the-spot because you get a free gift or the sales pitch sounds enticing.
Assuming that your plan isn’t to be a student forever, it’s also wise to ask what happens to the card when you are out of school. If you’ve used the card in a responsible way, will the limit be raised and the interest rate dropped? Will you have to open a new account to get better terms? Knowing this before you open the card can make the decision easier.
As long as you know what you are getting into, a student credit card can be a wonderful tool for preparing you for financial life outside of academia. Study up on the important factors and never be afraid to get help for the confusing parts.