Student Credit Cards

If you’re thinking about applying for a student credit card, make sure you’re also ready to take on the responsibility that comes with having one. There is a lot to learn about credit cards, but don’t fret – we can help you understand. In this article, we’ll show you:

• The best ways to stay out of debt
• Explain how interest and other bank fees work
• Show you the best cards for students
• Steps to building good credit

We have also included guidelines and other information for parents and co-signers, who may be involved in helping open the student account. And if you aren’t familiar with credit card jargon, check out our handy credit card glossary for reference as you read.

Stay Out of Debt with Your Student Card

Before signing up for a credit card, there’s one important rule to follow: don’t drown yourself in debt. It’s crucial that you take a moment to learn at least the basics of how credit cards work, along with how they can both benefit and hurt you financially. Getting your first student credit card is a great way to build your credit history, which can, in turn, help you out later in life when you must make even bigger financial decisions.

Understand Interest and Other Bank Fees

The average interest rate on credit cards for students is currently about 19.5 percent, which is higher than the national average of 15.09 percent across all credit card accounts. The reason the rate is higher for college students is because these borrowers usually have a limited – or nonexistent – credit history.

Think of it as training wheels. Most people don’t fully understand how credit or credit cards work until they experience these things first hand. It takes time to learn the ins and outs and even more time to build your own credit history. You’ll need help with this along the way. As such, card issuers typically apply lower possible credit limits to student cards until you can demonstrate over time that you will use the card responsibly and make full payments on a regular basis. These rates and terms can vary slightly depending on whether you are the sole applicant, or if you have a cosigner, which would typically be a parent.

The Credit CARD Act of 2009 sets limits on when a credit card company can increase rates on a brand new card, and also limits rate increases on existing card balances. Here are the times when a credit card issuer can raise your interest rates:

• Once the introductory promotional period ends, which is a minimum of six months by law.
• The rate will increase or decrease if the credit card owner has agreed to a variable rate.
• If a monthly payment is more than 60 days late.
• If the card user fails to make agreed-upon payments to a plan to pay off excessive debt.
• If the cardmember serves in the military and is no longer on active duty. For stated by federal law, interest rates are capped at 6% for active duty service members, but normally rises when active duty ends.

We recommend looking for a student credit card that offers zero-interest introductory rate. This is beneficial for new borrowers, but such a nice reward may only be possible if you use a cosigner – that is, someone like a parent or guardian who already has healthy, established credit who can help take on the responsibility of managing another credit card.

Your rights when rates increase

An important thing to know about having a credit card is that sometimes rates can increase. And as we learned in the previous section, it can change for a variety of reasons. The issuer must give you advance notice of any intended rate changes, whether they increase or decrease, at least 45 days before the change goes into effect. This also goes for any intended changes to the terms attached to the card.

You may not know that you, as the cardholder, have the right to cancel your account or opt out of the agreement at this point. Also, if you get back on track making payments and get caught up on any outstanding balance you may have, the card issuer may eventually lower your rates again. The issuer is required by law to review accounts every six months.

Guidelines for Parents

It’s safe to assume that your college-aged kid will be excited to have their own credit card. However, it’s up to you to discuss with them the benefits and the repercussions that come along with having one. Having a credit card is an opportunity to help them grow, both emotionally and financially, and whether you’ve chosen to co-sign a credit card with them or not, this is a great opportunity to teach them some key financial lessons:

Each credit purchase is a responsibility

Help your teenager realize that each purchase they make has a consequence and must be accounted for – literally. You can walk them through setting up a monthly budget of expected income and expenses and even help them decide how to pay for each purchase, with what card or account.

The best way to prevent your student from getting too comfortable with the credit card is to set it up only for small purchases. Card issuers typically reward frequent small purchases and the ability to pay it off each month. This plan reduces the chances of the card staying maxed out and racking up accruing interest fees or late fees.

If your child wants to use the card to make a larger purchase, help them understand what a big deal that is and what it will entail. Map out how long it will take them to pay off the purchase, and that interest will play into those payments. Also help them understand that a single large purchase on their card means they will have fewer funds for other upcoming purchases until they get their balance paid off.

Checking your account profile frequently is important

Have your teen log in regularly to their credit card lender’s website online or via the mobile app. You can encourage them to do this once a week, or monthly — whenever they pay the rest of their bills. Help them understand how to read statements, find their owed balance, and make an online payment properly. This practice helps them stay on top of their balance and develop good financial habits for the future.

Credit history starts with your first card

As you likely know, a student credit card gives young cardholders the chance to develop their own credit history. Starting this process as early as freshman year of college not only teaches financial responsibility, but also makes it easier for students to pass credit checks when applying for off-campus housing, buying a car, and applying for other loans down the road. Help your child understand that being responsible now will help them succeed financially as life goes on.

Co-signers have a stake in credit decision-making

If you are a parent who will be co-signing your teenager’s student credit card, be sure they understand what that means for you before doing so. Let them know that it is you who is ultimately responsible for payments, that it is your credit that will be affected by missed payments, and that it is you who is taking on additional debt to give them this opportunity, and that you expect them to use the card responsibly.

You can decide how to manage this, and communication is key. You can ask your student to let you know every time they make a purchase or payment on the card, or even ask view the statement each month.