Student Credit Cards
Student credit cards, when used wisely, are an invaluable tool for building a credit history while providing a convenient way to pay for unexpected expenses, emergencies, and even some creature comforts. Most students start their academic career with no credit history or rating; ownership of a student credit card can be an excellent first step toward the responsible use of credit.
Generally speaking, acquisition of a student credit card is relatively painless and requires no credit check or other investigation. Many credit card companies, banks, and credit unions actively pursue college students by offering online applications, as well as on-campus fairs where representatives enroll students on the spot. Others place enrollment cards in conspicuous places, such as student centers, bookstores, and even libraries.
Rates and Fees
Most student credit cards charge relatively high interest fees, although
many offer initial 0% or low interest periods that seem attractive until
the permanent interest rate is noted. Students are generally considered
high risk customers because many have no credit history and low income, so
they are likely to be given rates somewhat higher than the industry
average. Additionally, late fees are likely to be steep in order to
discourage late payments, which may also trigger rate increases approaching
the 25% range.
Card requirements should be reviewed carefully prior to application. Cards providing the lowest interest rates generally require at least some credit history; those that require no or a limited history often involve annual fees of $20-50 as well as higher interest rates. The high rate reflects the company's increased risk in taking on an individual whose credit history is unknown or non-existent.
Pre-Paid Student Cards
As an alternative to credit-based cards, some students (or their families)
opt for pre-paid cards that restrict the student's spending options while
still allowing them to create a credit history. These cards involve no
interest fees since students aren't permitted to go into actual debt, but
may require a monthly fee of between $5 and $10.
In general, student credit cards should represent a learning experience, not an uncontrolled spending account that will quickly create a mountain of debt. Students should be encouraged to limit their spending, monitor interest rates and expenses closely, and pay off balances monthly whenever possible. They should also be aware of the problem of identity theft, and understand the importance of reporting suspicious incidents quickly. Building a credit history is just as valid as any classroom educational experience.
