Although there are many types of credit cards on the market, the main difference between a student credit card and a regular credit card is that student credit cards are specifically for students. The main purpose of a student credit card is to help students build credit and encourage them to adopt good credit management habits. Below, we’ll look at some of the pros and cons of student credit cards.
Benefits of Student Credit Cards
Help you build a credit history
Student credit cards are designed to help you build your credit history and credit score. Establishing a credit history is important when looking to get approved for a better credit card, mortgage, auto loan, or other type of loan.
However, you can only benefit from the positive effects of a student credit card if you use it responsibly. This means paying your credit card bill in full and on time each month and keeping your credit utilization rate low. If you can use your student credit card responsibly, you’ll be in a good position when you’re ready to make a major purchase (like a house or car) or take out a loan in the future.
Teach you how to manage money
Another benefit of a student credit card is that it can teach you how to manage your money and use your credit responsibly. With a student credit card, you can learn the value of paying your balance in full each month, keeping your credit utilization rate low, and making sure you never spend more than you can. allow you to repay.
One of the most important ways to improve your credit score is to keep your credit utilization rate low. A credit utilization rate is the total amount of your charges divided by your available credit limit. For example, if your credit limit is $500 and you have a balance of $100, your credit utilization rate would be 20%. That’s less than the recommended credit utilization rate of 30%, which is good. Credit utilization above 30% is often considered risky for lenders.
If you want to maintain a good FICO score, be sure to pay off your credit card balance in full each month and keep your credit utilization rate low.
Help you in an emergency
As a student, you might have some unexpected expenses that arise while you are in school. You might have a big utility bill to pay when you run out of money, you might have to spend a few hundred dollars on textbooks you forgot, or you might have a medical problem on a trip to the foreign.
As long as you strive to pay your credit card bill in full at the end of each month, your student credit card can help you in an emergency. Just keep in mind that if you have a habit of building up a balance and carrying it month after month, your credit score will be negatively affected.
Offer rewards and benefits
Just because you’re in college doesn’t mean you don’t deserve to enjoy the benefits a credit card can provide. In fact, many student credit cards come with their own set of rewards and benefits that you can use to your advantage.
One of the most valuable benefits of a student credit card is a rewards program. A credit card rewards program lets you earn more points or cash back in popular shopping categories like restaurants, travel, groceries, and entertainment.
In addition to rewards programs, many student credit cards offer benefits such as no annual fee, welcome offers, 0% APR introductory offer on purchases or balance transfers, absence of foreign transaction fees and protection against fraud and purchases, among others.
Disadvantages of student credit cards
Lower credit limit
As a student, it can be difficult to get a credit card with a high limit. That’s not to say there aren’t student credit cards with higher credit limits — there are. However, these tend to be for people with better credit histories and good credit ratings. If you have a low credit score or no credit history, you may need to start with a student card with a lower credit limit.
Although building up your credit history is a gradual process, if you use your student credit card responsibly, you could qualify for a higher credit limit in as little as six months with some cards.
High interest rates
On average, student credit cards have higher interest rates than regular credit cards. If your interest rate is higher, you could be hit with an APR of 27% or more. However, low-interest student cards do exist. If you choose the right student card, you could have a low interest rate ranging from around 13% to 20%. Other student cards may include a 0% introductory APR on purchases and balance transfers for a selected time period. However, you can avoid paying high interest by paying off your balance in full and on time for each billing cycle.
Responsible use is essential
It’s also important to use your student credit card responsibly. While some students use their card to pay for basic necessities or emergencies, maxing out your credit limit or not making timely payments can result in high interest charges, late fees, a negative impact on your credit score and more. If you want to maintain good credit and make your student credit card work for you, be sure to manage your finances responsibly.
Fewer benefits than a regular credit card
Student credit cards are invaluable for building up credit, but there’s a general consensus that you’ll get the most out of a regular credit card. With a student card, you’re more likely to miss out on features that the best credit cards can offer, such as higher rewards rates, lucrative sign-up bonuses, and travel perks.
With a student credit card, you can build your credit history, gain experience managing credit cards, and increase your credit score. Once your credit score is in good shape, you can look for a regular rewards credit card that will earn you more rewards and provide more benefits.
The bottom line
Before applying for one of the best student credit cards, it’s important to consider how a student credit card will fit into your financial life. While a student credit card can be a useful tool for building your credit history and score, it can also be a great way to spend money you don’t have – and suffer the consequences. consequences. Make sure you can pay off your balances on time and in full and you’ll be well on your way to a strong financial future.