Student Credit Cards
Getting your first credit card can be exciting! Having a credit card is one way to develop your credit history. Learning to use credit responsibly can pave the way to your financial future by helping you to build a strong credit history. It is important to consider the purpose of having a credit card before you get one. Here is what you need to know about student credit cards.
Purpose of the Card
There are many reasons to get a student credit card. You may wish to have
a credit card for emergencies. A credit card can also be convenient for
making travel reservations. The most important thing to remember about a
credit card is that it is a loan. You must pay it back. For that reason, it
is best to decide in advance what your reason for having a credit card is
and use the card mainly for that purpose.
Interest Rate
The interest rate is the amount of money that the credit card company
charges on your outstanding balance. The interest rate for the credit card
may be fixed, or it may be tied to another rate (such as the prime rate).
If the credit card rate is linked to another rate, then it will change when
that rate changes. Check the rate of your credit card carefully to make
sure that it will not increase in a few months. Many cards have low
introductory rates, but increase their rates after a few months.
Low Limit and Prepaid Cards
For students who are getting their first credit card, low limit or prepaid
cards may be a good option. These credit cards allow a student to build a
credit history while limiting the dollar amount that they can charge.
Low limit cards
Low limit cards have a low preset spending limit. The limit for these
cards is typically between $200 and $500. With these cards, a parent
co-signs with the student for the card. These cards often allow parents to
monitor their student's spending.
Prepaid cards
A prepaid card allows a parent to set a limit by depositing money directly
into the card's account. Cash can be added to the balance of a prepaid
credit card as needed. When the balance in the prepaid card account is
gone, the card cannot be used until additional money is deposited.
Rewards
Many student cards offer rewards. While rewards can be extremely appealing
to students, they should not be the only factor that a student considers
when selecting a credit card. In fact, a card with a reward is not always
the best deal. Students should consider other features of the card as well,
such as the interest rate.
Credit History
Your credit history is important. For this reason, students should be
careful to make their payments on time and not to skip a payment. If
possible, you should pay off the entire outstanding balance of the card
each month. Your credit history will determine what types of loans you can
get in the future.
The Bottom Line
Student credit cards can be a great way for a student to learn to manage
money. However, it's important to realize that money charged on a credit
card must be repaid. It is also important to remember that your credit card
usage affects your credit history. Always pay your credit card bill on
time. Decide on the purpose of your credit card and use it primarily for
that purpose.
