Student Credit Cards

The life of a college student can be an exciting and challenging time. Most students find themselves attempting to manage academic studies and part-time employment with new financial responsibilities, like student loans, rent, utilities, groceries, and other expenses. This is also a time when many students should start to establish their own credit history. Unfortunately, when it comes to identifying ways students can establish credit, the options available are limited. Further, learning how credit cards work and understanding what factors are important is an experience that can be beneficial to any student.

Student credit cards provide an excellent way for young students to begin the credit establishment process. The best student credit cards are designed specifically with students in mind, in comparison to more general rewards credit cards targeted more to working adults. Student cards generally come with relatively low lines of credit and often require a cosigner. Similar to general rewards cards, the best student credit cards will still provide rewards for everyday purchases, including things like gas and groceries. These rewards can be redeemed for cash back, gift cards, music, electronics, and other types of merchandise. In addition, student credit cards can include benefits like travel insurance, roadside assistance, fraud protection, and emergency support.

Student credit cards are acquired for a variety of purposes. Some students may be interested primarily in establishing credit while others might appreciate knowing there are resources available in case of an emergency. Students might also lack financial resources, which may mean they have to build the credit card into their monthly budget. Regardless of the reason the student credit card is acquired, conducting research and comparing available features will help ensure that each student will select the best student credit card for their circumstances.

Understanding Credit Card Basics

For those new to credit cards, it can take some time to understand all the terms, conditions, rates, and fees associated with card ownership. Listed below are some of the common terms used by credit card companies that can help new cardholders better understand credit and make more informed decisions. It may take a little time for these concepts to sink in, but the extra effort can help new student cardholders avoid unnecessary mistakes and successfully establish a solid credit score.

Annual Fee: The annual fee is the charge for using the credit card that is applied every year. Not all credit cards will have an annual fee, and fortunately, none of the top student credit cards charge an annual fee.

Annual Percentage Rate: The Annual Percentage Rate (commonly referred to as APR), is the rate at which interest will accumulate if the credit card balance is not paid off each month. The APR is usually determined by the credit of the applicant and the current Prime Rate. The APR on student credit cards generally ranges from 12.99% - 23.99%. The most important thing to know is that a low APR is better than a high APR.

Introductory APR: Some credit cards will offer an introductory APR that is lower than the standard APR. In many cases, credit cards will offer a 0% introductory rate for a specified period at the beginning of card ownership. For example, two of the top student credit cards have a 0% introductory rate for the first seven months of card ownership. This means that interest will not be accumulating on any credit balances for the first seven months of owning the card. After that seven months is up, the standard APR will kick in.

Cash Advance Fee: The cash advance fee is a charge associated with getting cash from the credit card or taking out a loan on the line of credit. The cash advance fees for the top student credit cards is $10.00 or 5% per transaction.

Cash Advance Rate: When a credit card is used to make normal purchases like gas or groceries, the standard APR will apply. However, when a cash advance is requested, a different interest rate will be applied. The cash advance APR on the top student credit cards is roughly 25%. Cash advances are a nice convenience, but ideally they will only be used when no other options are available.

Balance Transfer Fee: The balance transfer fee is a charge applied when a credit balance is moved from one credit card to another. This fee is typically either a set dollar amount, or a percentage of the amount transferred. The balance transfer fees on the top student credit cards is $5.00 or 4% of the transactions amount.

Balance Transfer APR: When a balance is transferred to a new credit card, the APR for that transaction is called the balance transfer APR. The balance transfer APR is often higher than the standard APR. With student credit cards, the balance transfer rate ranges from 12.99% - 23.99%. Some credit cards offer introductory balance transfer rates that will work just like a standard introductory APR, but it will only be applied to the balance of the transfer.

Late Payment Fee: The late payment fee is the charge applied when a payment is not made before the deadline. These fees can vary, but with student credit cards they can reach as much as $35 dollars.

Default Penalty Rate: The default penalty rate is the interest rate applied to a portion of the credit balance (or in some cases the entire balance) when a credit card is in default. Some behaviors that can trigger the default penalty rate include missing a payment, having a payment returned for non-sufficient funds, or exceeding the established credit limit. The default penalty rate is typically the highest interest rate credit card issuers will apply. With student credit cards the common default penalty rate hovers around 29%.

Over-limit Fee: The over-limit fee is the charge associated with exceeding the established line of credit. Not all credit cards will charge an over-limit fee, and fortunately, none of the top student credit cards apply them.

Foreign Currency Transaction Fee: This is the fee charged when a credit card is used internationally. The foreign currency transaction fee for student credit cards is as high as 3% per transaction. This may seem like a small amount, but for students doing a study abroad or heading out on a big trip, these fees can add up and result in an unexpected charge.