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The primary distinction between secured and student credit cards is that you must provide a security deposit to obtain the former, whereas there is no such requirement for the latter. Both tend to come with more lenient eligibility requirements when compared to regular credit cards.
Whether you get a student or a secured credit card, you can build your credit history by using it correctly. Selecting between the two typically boils down to whether or not you qualify for a student credit card.
- Secured credit cards require a security deposit, whereas student credit cards do not.
- You need to provide proof of enrollment to apply for most student credit cards.
- Both student and secured credit cards allow you to build your credit history.
What’s the Difference Between a Student and a Secured Credit Card?
A student credit card is a type of credit card specifically tailored for college and university students. They're designed to allow students to start building their credit histories while still in school. These cards often consider that many students may not have an extensive credit history or a high income.
On the other hand, a secured credit card is a type of credit card that requires a cash deposit from the cardholder as collateral. This deposit typically determines the credit limit of the card. Secured credit cards are primarily aimed at individuals with little to no credit history or those looking to rebuild their credit. The deposited amount acts as a safety net for the issuer, should the cardholder default on payments.
The table below shows an overview of the key differences between student and secured credit cards:
Student Credit Cards
Secured Credit Cards
Credit Card Limit
Features and Benefits
Interest Rates and Fees
Credit Card Eligibility
Eligibility requirements tend to differ between student and general credit cards due to their target demographic and intended purposes. Here's a breakdown of the primary differences:
Student Credit Card Eligibility Requirements:
- Student Status: One of the primary requirements for a student credit card is proof of enrollment in a college or university. This could be in the form of a student ID, enrollment verification letter or class schedule.
- Age: Most credit card issuers require the applicant to be at least 18 years old.
- Limited Credit History: Many student credit cards are designed for students with limited or no credit history. As such, while some card issuers might perform a credit check, they often have more lenient criteria for students.
- Income: Some issuers may ask about income sources, including part-time jobs, internships or allowances. Having a high income is not always mandatory, but proof of the ability to pay might be needed.
- Co-signer: If a student doesn't qualify independently, some issuers allow for a co-signer, who takes on the responsibility of the debt if the student can't pay it.
- U.S. Residency: For most U.S.-based credit card companies, the applicant should be a U.S. resident, although there are student credit cards that cater to international students.
Secured Credit Card Eligibility Requirements:
- Security Deposit: The most distinguishing feature of a secured card is the requirement of a cash deposit. This deposit usually determines the card's credit limit and acts as collateral.
- Credit Check: While these cards are designed for those with poor or no credit history, many issuers still perform a credit check. However, because of the security deposit, the approval rate is generally higher compared to regular unsecured cards.
- Proof of Income: Issuers often want to know if the applicant has some means of paying their credit card bill. This doesn't mean a high income is necessary, but there should be some proof of stable income or sufficient savings.
- Age: Like all credit cards, the applicant typically needs to be at least 18 years old.
- U.S. Residency: Most U.S.-based card issuers require the applicant to be a U.S. resident. Some might also accept applicants with an Individual Taxpayer Identification Number (ITIN) in lieu of a Social Security Number.
- Bank Account: Some secured card issuers may require the applicant to have a bank account.
In essence, while both card types are designed to be more accessible than regular unsecured cards, student cards focus on the student's status and potential future earnings, whereas secured cards rely more heavily on the collateral provided by the security deposit.
Credit Card Limit
Credit limits play an important role in how cardholders can use their credit cards, and both student and secured credit cards have specific approaches to determining these limits. Here's a comparison of how they differ:
Student Credit Cards and Credit Limits:
- Starting Limits: Student credit cards typically start with a relatively low credit limit. This limit is intentionally set to minimize issuers' risk and encourage responsible spending habits in students who may be new to credit.
- Increases Over Time: Students might become eligible for credit limit increases with responsible usage, such as paying the full balance on time and keeping credit utilization low. Some issuers might even review accounts periodically (e.g., every six to 12 months) and automatically raise the limit for those who've managed their card well.
- Factors for Determining Limits: While the starting limit is generally low, other factors that might influence it include any demonstrated income (from part-time jobs or internships) and any existing credit history, though the latter might be limited or nonexistent for many students.
Secured Credit Cards and Credit Limits:
- Deposit-Based Limits: The credit limit for a secured credit card is most commonly determined by the security deposit made by the cardholder. For instance, if a cardholder deposits $500, the credit limit will typically be $500. This direct correlation acts as a safety net for the issuer.
- Potential for Higher Limits: Some card issuers might offer a credit limit that's slightly higher than the deposit after considering other factors, like the cardholder's income or creditworthiness. However, this practice is less common.
- Increases Over Time: Like student cards, with consistent and responsible usage, secured cardholders might be offered an increased credit limit without needing to deposit additional funds but only up to the original credit limit the issuer granted. Furthermore, responsible use might also allow cardholders to transition to an unsecured card, which often comes with a higher credit limit.
- Return of Deposit: The initial deposit isn't a fee; it's collateral. If the cardholder decides to close the account and has paid off any balance, the deposit is typically returned. Also, the deposit can be returned if they transition to an unsecured card with the same issuer.
In summary, while both student and secured credit cards often start with lower credit limits, the fundamental difference lies in the determination of those limits. Student card limits are typically set by the issuer based on various factors but are generally low to reduce risk, whereas the cardholder's deposit amount directly influences secured card limits. Both cards, however, offer the possibility of increased limits over time with responsible usage.
Features and Benefits
While both card types come with unique features and benefits tailored to their specific users, student credit cards tend to focus on education, rewards relevant to student life and leniency for beginners. In contrast, secured credit cards emphasize credit building or rebuilding, with the potential for cardholders to transition to unsecured versions as their creditworthiness improves.
Student Credit Cards: Features & Benefits
- Educational Resources: Recognizing that many students are new to credit, issuers often provide educational resources to guide them. These might include articles, videos or webinars on credit-building, budgeting and financial literacy.
- Rewards on School-Related Purchases: Many student credit cards offer rewards or cash back on categories relevant to students, such as for dining, bookstores or grocery stores.
- No Annual Fee: Most student credit cards do not charge an annual fee, making it cost-effective for students who often operate on tight budgets.
- Introductory Offers: Some student cards might offer introductory APR rates or bonus rewards points for the initial months after account opening.
- Credit Score Tracking: To help students monitor their credit-building progress, issuers might offer free access to their credit score and related tools.
- Forgiveness Features: Understanding that mistakes can happen, especially when navigating credit for the first time, some student cards might be more forgiving for the first late payment by waiving the late fee or not increasing the APR.
Secured Credit Cards: Features & Benefits
- Credit Building Focus: The primary feature of a secured credit card is to help individuals build or rebuild their credit. Issuers report to the major credit bureaus, ensuring that responsible usage positively impacts the user's credit history.
- Potential to Graduate: With consistent, responsible usage, some secured cards allow users to "graduate" to an unsecured card with the same issuer. When this happens, the security deposit is returned, and the user might gain access to a card with better terms and benefits.
- Modest Rewards: While not as common as with other types of cards, some secured credit cards offer rewards or cash back on purchases. The rates might be lower compared to premium or student cards, but it's a valuable feature for those working on their credit.
- Low or No Annual Fees: Many secured credit cards have low or no annual fees. Given their customer base, issuers aim to make these cards as accessible as possible.
- Flexible Security Deposits: Some issuers offer flexibility in the security deposit amount, allowing users to choose within a range. This feature can be useful for those who might not have a large sum available for deposit upfront.
- Credit Score Tracking: Similar to student cards, secured cards might also offer free access to credit score tracking tools, which is crucial for those keen on monitoring their credit improvement.
Interest Rates and Fees
While student and secured credit cards often offer an entry point into building credit, they come with specific terms and conditions. Here's a closer look at what you can expect in terms of interest rates and fees for student credit cards:
Student Credit Cards: Interest Rates & Fees
- Student credit cards might have slightly higher annual percentage rates (APR) compared to some regular credit cards. This is because students typically have limited credit history, which presents a higher perceived risk to issuers.
- Annual Fee: Most student credit cards do not have an annual fee.
- Late Payment Fee: While there might be a fee for late payments, some issuers may waive this fee for the first instance as a gesture of understanding towards students who are new to credit management.
- Foreign Transaction Fee: Some student credit cards may waive foreign transaction fees, which is beneficial for students studying abroad or traveling.
- Cash Advance & Balance Transfer Fees: These fees are typically in line with industry averages, and students should be aware of them.
Secured Credit Cards: Interest Rates & Fees
- Secured credit cards often come with higher APRs. This is reflective of their target users — many of whom are rebuilding credit or have no credit history, signifying a higher risk to the card issuer.
- Annual Fee: While many secured credit cards aim to have low or no annual fees, some might charge an annual fee, especially if they offer additional perks or benefits.
- Late Payment Fee: These can be on par with or even higher than other card categories. Consistent on-time payments are crucial to avoid these fees and positively impact one's credit score.
- Foreign Transaction Fee: This varies among issuers, but secured cardholders, like others, might incur a fee for transactions made outside their home country.
- Cash Advance & Balance Transfer Fees: Secured credit cardholders should also be cautious about these fees. Given the card's primary purpose is credit building, it's generally best to avoid behaviors (like cash advances) that can lead to additional debt.
- Setup and Monthly Fees: Some secured cards might come with one-time setup fees or monthly maintenance fees, especially those catering to individuals with particularly low credit scores.
Student cards introduce credit to young adults and nurture good credit habits early on. On the other hand, secured cards provide a structured path for individuals, whether they're new to credit or looking to mend past mistakes, to demonstrate their creditworthiness. Both types underscore the importance of on-time payments, responsible spending and understanding credit utilization for effective credit building.
Student Credit Cards and Credit Building:
- First-time Credit Users: Student credit cards are often the first credit cards a young adult obtains. They're designed for individuals with limited to no credit history and serve as an introduction to credit building.
- Monthly Reporting: Like other credit cards, student card issuers report payment history to the major credit bureaus — Experian, TransUnion and Equifax. Regular on-time payments play a significant role in building a positive credit history.
- Credit Utilization: Students can learn the importance of credit utilization (the ratio of your card balance to its limit). Keeping this ratio low (generally below 30%) can positively influence credit scores. The typically lower credit limits on student cards mean cardholders need to be especially mindful of their spending.
- Building Good Habits: With features like educational resources and potentially more lenient penalties for the first late payment, student cards encourage the development of responsible credit habits from an early age.
Secured Credit Cards and Credit Building:
- Designed for Rebuilding: While they can be used by those new to credit, secured cards are especially beneficial for individuals rebuilding their credit after financial missteps or hardships. They offer a structured way to demonstrate creditworthiness by using the card responsibly.
- Monthly Reporting: Like student cards, secured card issuers report to the major credit bureaus. This consistent reporting means that with regular on-time payments, cardholders can see improvements in their credit scores over time.
- Security Deposit as Collateral: The required security deposit (which typically determines the card's credit limit) acts as collateral. This setup reduces risk for the issuer and serves as a built-in spending limit, ensuring cardholders don't spend beyond their means.
- Graduation to Unsecured Cards: With responsible use, some secured cardholders may be offered the chance to "graduate" to an unsecured credit card with the same issuer. This transition usually comes with a return of the security deposit and might offer better terms and benefits, reflecting the improved creditworthiness of the cardholder.
Pros and Cons
Student and secured credit cards come with their share of pros and cons.
Pros of Student Credit Cards
- You don’t need to pay a deposit.
- You stand to earn rewards and cash back.
- Most come with no annual fees.
Cons of Student Credit Cards
- They are typically meant only for students.
- Most require that you have some credit history.
- They tend to come with lower credit limits than regular cards.
- You’ll need to show you have enough income.
- Students under 21 years of age without adequate independent income require co-signers.
Pros of Secured Credit Cards
- Anyone over 18 years of age may apply.
- Some secured cards accept high deposits and provide high credit lines.
- You might qualify without any credit history.
- You have the ability to control the credit limit.
Cons of Secured Credit Cards
- You need to make a security deposit.
- You need to make timely repayments to cover purchases despite the deposit.
- Card issuers still look at your income and creditworthiness.
- Most don’t offer rewards or cash back.
- Most come with annual fees.
"When choosing a secured credit card, look for one that automatically increases your limit when you pay your account on time after a set number of months. Some also upgrade your card to unsecured as your credit history builds.” — Lee Huffman, credit card expert at BaldThoughts.com.
Should College Students Get Secured Credit Cards?
Since secured credit cards aren’t meant just for students, you may want to consider applying for one if you don’t qualify for a student credit card. While both cards are typically easier to qualify for than regular credit cards, you have more chances of approval with secured cards if you have little to no credit history.
If you’re unable to qualify for a student credit card due to poor creditworthiness, no credit history or not being enrolled in an eligible educational institution, consider applying for a secured credit card that requires a low security deposit and comes with no annual fees.
Once you build your credit, consider getting a regular credit card. Some card issuers evaluate you for an unsecured card after several months. If this is not the case with your card provider, you may consider applying for a regular card by closing the secured card and returning your security deposit.
Now that you know where the secured credit card vs. student credit card comparison stands, consider getting the latter if you qualify for one. At the end of the day, both can help you build credit if you use them in the right way. No matter which type of credit card you get, use it responsibly to build a positive credit history.
Frequently Asked Questions
Here are some answers to commonly asked questions about the student credit card vs. secured credit card comparison.
About Rajiv Baniwal
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