How To Use A Student Credit Card: 7 Tips For College Students

Are you a college student looking to build a secure financial future? Believe it or not, student credit cards can be a great way to help build your credit. And a strong credit history can also help you prepare for major life events, like renting an apartment or buying a car. It may even influence your next job application.

Student credit cards are intended for college students who want to get their first credit card. But before applying for one, make sure you understand how a credit card works, how it can help you build credit and what to watch out for when applying.

What Is A Student Credit Card?

A student credit card is designed for college students with limited, average or even no credit history. Their credit history is likely thin or nonexistent because they’re applying for credit for the first time. In most cases, the applicant must be at least 18 years old, an enrolled college student and earn a certain amount of income.

In the past, student credit cards didn’t offer much more than the opportunity to build credit, but this has changed in recent years. Today, many credit card issuers offer rewards programs or bonuses that fit a college student’s lifestyle.

On the flip side, you’ll also find that student cards have lower credit lines and higher interest rates and may also have penalty fees similar to standard consumer credit cards.

How Does A Student Credit Card Build Credit?

Student credit cards help build credit because issuers report your payment activity to the three major credit bureaus – Experian™, Equifax® and TransUnion^®. Credit bureaus record the types of credit accounts and loans you have. And lenders review your payment history to help determine whether you’re a responsible borrower.

In other words, if you have loans (probably student loans) and get a credit card, it will show prospective lenders how well you manage different types of debt. Sensible debt management today can increase your chances of qualifying for a car loan or mortgage in the future and securing better interest rates.

You’ll need to be a responsible cardholder to build a positive credit history, which means paying your credit card bill on time, maintaining a low credit utilization ratio and more.

7 Credit Card Tips For College Students

A student credit card should be used to build credit and learn how to manage money. You likely walked on campus hoping to start your freshman year with good intentions and good grades. It’s the same with credit cards. You want to use your first year with a credit card to set up good money habits to build your credit.

Read on to learn some best practices for using a student credit card.

1. Don’t Spend More Than You Can Afford

Remember, you’ll need to pay your credit card balance back eventually. Overextending yourself could mean paying credit card interest or struggling with payments. Credit card companies know they're offering credit to students with limited credit history, so student credit cards tend to have high interest rates, which you’ll have to deal with once the introductory annual percentage rate (APR) period is up.

Ideally, you would pay off your credit card balance each billing cycle. If you can only make the minimum payment, though, you'll pay a lot in interest. Just making the minimum payment while continuing to use the card can land you in credit card debt.

2. Be Aware Of Cards With Interest-Free Deals

Some credit card issuers offer a 0% APR promotional period on their student cards. The upside is that for 6 – 18 months or more, interest won't be charged on your credit card purchases. The downside is that the interest-free period doesn’t last forever.

If you don't pay off the card before the promotional period ends, you will be charged interest on any remaining balance.

Let’s say your card offers 6 months of interest-free payments, and by the end of 6 months, you haven't paid off your credit card. You’ll see a large interest charge on your next billing statement.

3. Consider A Co-Signer Or Becoming An Authorized User

If you're having trouble getting a credit card because you have no credit history, consider getting a co-signer on your student card or becoming an authorized user on another person's card.

Your choice of co-signer should have an excellent credit history. But many people are uneasy about acting as co-signers because their name and credit are on the line if you don’t pay your credit card bill. To boost your chances of recruiting a co-signer, ask close family members or friends who know and trust you whether they would be willing to help.

The other option is to become an authorized user on someone else’s card. Becoming an authorized user won’t build credit as fast as having your own credit card, but it gives the account holder more control.

4. Create A Budget

Budgeting makes your money work for you. You lay out your expenses, prioritize them and then compare them to your income. Creating a budget also helps you manage your money and may help cut down on impulse buys.

You can take advantage of credit card cash-back perks by budgeting the money you’ll spend at the grocery store and gas station and using your credit card for these purchases. Or, using your debit card for everyday purchases and your credit card for big purchases is another strategy that will allow you to take advantage of certain perks, such as travel rewards.

5. Maintain A Low Credit Utilization Ratio

Credit utilization is the ratio between your credit limit and credit card balance. Most experts recommend keeping it to 30% or lower. For example, if your card has a $1,000 credit limit, you should do your best to keep your balance at or below $300.

6. Pay Off Your Card Balance Each Month

If you pay off your balance each billing cycle, you don’t need to worry about compounding interest and growing credit card debt. Paying off your balance each month can help you build a good credit score and history without accumulating credit card debt.

Keep an eye on your credit card account to be sure you don't overspend. Carrying a balance from one statement closing date to the next will only mean you pay more interest.

7. Carefully Consider Cash Advances

You’ll be charged interest as soon as those dollar bills land in your hand if you take out cash using your credit card. Plus, cash advance rates tend to be much higher than purchase rates. If you have no choice and must take out a cash advance, be prepared to pay it back with interest.

What’s The Difference Between A Student Credit Card And A Secured Credit Card?

Both student and secured credit cards tend to have low credit limits. But there are key differences between the two types of cards.

A student credit card is geared toward full-time college students. Most credit issuers will ask about your educational status in the application form. Credit card issuers may require you to use a .edu email address or supply a student ID. Student credit cards can also be unsecured, meaning you won’t need to put down a deposit to use them.

A secured credit card is for applicants who aren’t students and don’t have a credit history or limited credit history. You can use a secured card to build or rebuild your credit history if you have poor credit. Secured cards require collateral – such as a security deposit – which typically acts as your credit limit.

What Are Some Of The Best Student Credit Cards?

There are many popular student credit cards with different perks. Before signing up for one, it’s crucial to do your research to see what’s best for you.

Here are some of the best credit cards for college students and the perks they offer:

• Discover it^® Student Cash Back: There is no annual fee. And you can earn up to 5% cash back at grocery stores and gas stations, when you use PayPal or shop on Amazon.com. Additionally, you can get a $20 statement credit for good grades (at least a 3.0 GPA for a year). And you won’t be charged a late fee on your first late payment.
• Chase Freedom^® Student Credit Card: You earn 1% cash back on all purchases. And earn a one-time $50 bonus after your first purchase within the first 3 months of opening your account.
• Capital One SavorOne Student Cash Rewards Credit Card: This card has no educational requirement. You can earn unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores. Additionally, you can redeem rewards points to cover recent purchases or get gift cards, statement credits or checks.

How To Apply For A Student Credit Card

Before filling out a credit card application, you may be able to see what you qualify for. That means you’ll be able to check your options without affecting your credit score (if you have one).

Once you’re ready to apply, you’ll provide details like your name, address, Social Security number, where you attend college and proof of income. It’s as simple as that.

If you're receiving credit card offers, see if anything looks interesting. But not every tempting offer is reason enough to apply for a card. Too many credit card applications on your credit report can negatively impact your credit score.

The Bottom Line: Start Building Your Credit With A Student Card

Getting a student credit card is a great way to start building your credit history and credit score. Using your card responsibly can help prepare you for major life purchases down the road, like buying a car or a house.

Keep track of your credit card spending – and ensure you’re making on-time, monthly payments – with Rocket Money℠. Our mobile app lets you connect your student card(s) and debit card to provide a complete overview of your financial profile. The app can also help you create a budget, set up auto savings and more.

Learn more about how to manage your finances in college and beyond. Download the Rocket Money app today.