The Pros and Cons of Student Credit Cards
Getting your first student credit card comes with advantages and disadvantages. Student cards allow you to start building a credit history and earn rewards on purchases. But you also take on responsibility for managing credit at a young age.
In this comprehensive guide, we’ll objectively break down the pros and cons of student credit cards to paint a full picture. We’ll compare the benefits against risks to help determine if getting a card makes sense for your financial situation.
Why Get a Student Credit Card?
Here are some of the main advantages student credit cards offer:
Establish Credit History – Making on-time payments builds positive credit records with bureaus to prove you’re creditworthy. This helps qualify for loans and credit down the road.
Learn Financial Skills – Managing a card responsibly teaches budgeting, money management, and the costs of borrowing early in life under lower risk circumstances.
Earn Rewards – Many student cards offer cashback, points, or miles for your spending, allowing you to earn something back.
Build Credit Score – Diligent account management improves your credit score over time by increasing length of history, credit mix, and on-time payments.
Access to Credit – Having an available line of credit can provide flexibility for unexpected expenses, emergencies, or other needs.
Security Features – Credit cards come with $0 fraud liability if your card number gets stolen, unlike debit cards linked directly to your bank account.
Used prudently, student cards provide huge advantages before entering adult financial life after graduation.
Potential Downsides of Student Credit Cards
Here are some risks and drawbacks to consider:
Overspending – It’s easy to overspend on impulse purchases when relying on credit instead of cash from a limited student income.
High Interest Charges – Carrying a balance month-to-month results in double-digit interest rates, increasing your costs significantly.
Missed Payment Penalties – Late fees, jumps in interest rates, lower credit limits, and credit score damage can occur from missed payments.
Prequalification Requirements – Meeting minimum credit score requirements and providing income documentation can be difficult for some students.
Age Restrictions – Most issuers require being at least 18 years old to apply individually. Some student cards require a 21+ co-signer.
Limited Credit History – Students may only qualify for low limits, reducing approval odds for some premium card offers.
Authorized User Misstep – Being added only as an authorized user and not applying for your own card fails to establish independent credit records.
The risks require prudent use, but rewards outweigh potential drawbacks when you maintain diligent money management habits.
Evaluating the Pros of Student Credit Cards
Let’s explore the major advantages of student credit cards in more detail:
Build Credit History and Scores
Having multiple open and active credit accounts with perfect on-time payment history builds your profiles and scores. Student cards allow establishing history early. Even closing accounts eventually, the positive history remains.
Gain Financial Literacy
A student card provides real life scenarios to manage credit and debt responsibly. Learning key skills like maintaining low balances, avoiding fees, and monitoring statements prepares you for credit decisions after graduation.
Earn Rewards on Spending
Most student cards offer cashback, points or miles on purchases. Rewards provide savings and incentives for diligent account management. Discover offers rotating 5% cashback quarterly categories for example.
Qualify for Future Credit
Established history and higher credit scores achieved through responsible student card usage helps qualify for auto loans, mortgages, premium card approvals, and lower interest rates in adulthood.
Build Emergency Backup
Having an open student card provides a credit line for unexpected expenses. Building available credit gives flexibility to handle financial surprises life may throw at you.
For motivated students, the benefits easily outweigh the risks when approached carefully.
Examining the Cons of Student Credit Cards
Now let’s break down the biggest drawbacks and hazards to be aware of:
It’s easy to overspend on wants versus needs when relying on credit instead of a set student income budget. Impulse purchases are harder to resist if you don’t physically see your cash reserves dwindling.
High Interest Charges
If you carry a balance month-to-month, double digit interest charges add up quickly. Just a few late payments can slam finances as well. This can devastate students on limited incomes.
Missed Payment Penalties
Late fees, jumps in interest rates, lowered credit limits, and credit score damage make financial recovery hard. Students already face limited options. Don’t stack the odds against yourself with missed payments.
Application Denial Risk
Limited income or poor credit history can lead to application denial. Multiple student cards applications in a short period can also lead to denials. Avoid applying until you optimize credit and income documentation.
Some student cards require the applicant to be 21 years or older. Most require at least 18. Adding an authorized user won’t help an under 18 student establish independent credit history either.
Getting approved takes meeting issuers’ minimum requirements. But the advantages outweigh the negatives when approached responsibly.
Tips for Using a Student Card Responsibly
Here are some tips to maximize benefits and minimize drawbacks when using your student credit card:
- Only charge planned expenses that fit your budget – avoid impulse spending
- Pay your bill on time and in full each month to avoid costly interest fees
- Review statements closely and set account alerts – avoid unexpected fees
- Keep credit utilization low by making payments early and often
- Build your credit score aggressively – a 700+ score unlocks better rates
- Apply for gradual credit limit increases over time as income allows – this further builds your profile
- Create a realistic budget including projected credit card spending – don’t bite off more than you can chew
- Contact card issuer immediately with potential payment issues – seek hardship help when needed
Stay focused on building healthy financial habits. The rewards will take care of themselves.
Who Are Student Credit Cards Ideal For?
Student credit cards provide the most benefit to:
- Juniors or seniors with steady allowances, income, or financial aid
- Students ready for the responsibility of managing accounts diligently
- Those with existing savings to repay statement balances responsibly
- Students wanting to build excellent credit before post-college expenses
- Anyone pursuing credit cards in a cautious and informed manner
Younger students who struggle with money management may wish to wait until greater financial maturity before applying.
Final Take on Student Credit Cards
The right student credit card under the right circumstances can provide huge advantages. But reckless use magnifies any downsides significantly.
Do your research, create a spending budget, understand the risks and monitor statements routinely. With discipline, you can leverage student cards to establish rock-solid financial habits and creditworthiness.
Play it smart and approach with care. If used properly, your first student card can put you leaps and bounds ahead of peers as you embark on financial independence after college.