How Do Student Credit Cards Work?

Student credit cards are typically meant for students over 18 years of age. However, until you turn 21, getting one comes with additional requirements (you need to show that you earn adequate independent income or have a co-signer). You might consider getting a student credit card if you want to start building your credit history, if you need short-term financial assistance or if you want to safeguard your spending when overseas.

You can use a student credit card to make all types of legitimate purchases. However, you should pay them off as quickly as possible to keep your interest charges minimal. Compared to regular credit cards, alternatives for students tend to have more relaxed creditworthiness requirements.

One of the main differences between student credit cards and regular credit cards is the eligibility criteria. Unlike most good regular credit cards, student credit cards don’t focus much on applicants’ credit scores. Given the changes in credit card requirements that came about because of the Credit CARD Act of 2009, students under 21 must show that they have independent income or get co-signers for their applications.

Since student credit card providers don’t have your existing creditworthiness to go by in making their decisions, you can expect your card to come with a lower credit limit and a higher APR than that of a regular card. The rewards or cash back you stand to earn might also be lower than what you can expect through a regular card.

Student credit cards are designed for young adults to build credit. They often have lenient approval criteria, educational resources and rewards. However, they might come with higher interest rates and lower credit limits. Some provide safety nets, like no penalty for initial late payments, but there's a risk of high fees or accumulating debt if not managed properly. Here's how student credit cards work:

If you're considering getting a student credit card, it's crucial to do your research, read the fine print and ensure you can responsibly manage the card. It can be an excellent tool for building credit but can also lead to debt if not used wisely.

More: Guide to Credit and Credit Cards for Students

Using a student credit card properly grants you the means to build your credit history. This is because student credit card providers report payment histories to credit bureaus such as TransUnion, Experian and Equifax.

To build your credit score using a student credit card, you must make all your payments on time and keep your credit utilization ratio low. The credit utilization ratio refers to the amount of credit you’ve used compared to the total amount of credit available. For instance, if you’ve borrowed $200 from your only credit card with a limit of $500, your credit utilization ratio is 40%. From a creditworthiness point of view, it’s ideal to keep your utilization ratio below 30%.

The average age of your credit accounts plays a role in your credit score as well, so the older your student credit card account, the better for your creditworthiness.

If you handle your credit card debt in the right manner, you may expect to see positive signs in your credit reports within six to 12 months.

Student credit cards are tailored for young adults, allowing them to build a credit history early on. These cards often feature lenient approval criteria, educational resources and rewards, making them attractive for those new to credit. However, they can also come with higher interest rates and lower credit limits as a trade-off. Some even offer safety nets like no penalty APRs or no late fees for initial missed payments, but the potential for high fees or debt accumulation remains if not used wisely.

To make the most of a student credit card, paying the balance in full each month, monitoring credit utilization and regularly checking credit reports are essential. After establishing a credit foundation, transitioning to a standard card with better terms may be beneficial. Proper education and responsible usage are key to managing student credit cards effectively.

The answers to these commonly asked questions about student credit cards can help you manage multiple cards or decide which is best for you.