Students nearing their high school graduations and those entering their first years of college are prime candidates for learning how to manage their credit. When they master this important skill early in life, they stand a better chance of maintaining high credit ratings and solid financial behaviors that could guarantee their future security and success.
An important part of learning to manage their credit involves using credit cards responsibly. These suggestions for credit cards for students can help them learn the fundamentals of responsible money and credit management.
Secured Bank Credit Card
One of the safest ways for students to learn how to manage their credit involves applying for and using a secured bank credit card. These credit cards are guaranteed by funds that are already in the students’ bank accounts. They typically are backed by the money deposited into a savings or checking account.
As students charge and pay off their lines of credit, the bank reports their positive payment behaviors to the three major credit bureaus. If they miss or are unable to make a payment, the funds can be taken directly out of their bank accounts.
These student credit cards involve little risk and set the groundwork for positive financial behaviors later in life. They also help establish and bolster students’ credit scores, allowing students to apply for and possibly receive more extensive lines of credit later in life.
Depending on their age, students may obtain one of these cards without a guarantor. However, if a student is under age 18, he or she may be required to have a parent or another adult on the account. The parent or guarantor may be able to establish spending limits and dispute charges on behalf of the student.
Secured Credit Card
Similar to a bank credit card, a secured credit card requires that people first pay a deposit to open the line of credit. The deposit for this type of card, however, cannot be used to forgive or make up for missed or forgotten payments. Rather, this upfront payment is utilized primarily for the profit of the creditor.
Still, for individuals who have little to no credit, these credit cards for students can be ideal for establishing credit and for having positive payment information reported to the credit bureaus. These cards typically come with modest lines of credit and sometimes higher than normal interest rates. After using one of these cards responsibly for six months to a year, people may have enough positive credit established to apply for a lower interest, higher line of credit card elsewhere.
When using one of these secured credit card accounts, it is important for students to avoid maxing out or overspending the limit. Because of the higher interest rate, the debt may take longer to pay off in full.
Rather, they are encouraged to charge only what they can afford to pay off the next month. By charging modest amounts and paying off the debt quickly the next month, they establish good credit and also build a credit rating that can help them be approved for lower interest cards later.
Some credit card companies offer student credit cards that can be used in conjunction with a parent’s already established line of credit. Parents can add their students to their accounts and have a card issued in their children’s names. They can then set a spending limit and oversee their children’s financial behaviors as well as help make payments to that students establish good credit early in life.
Students benefit because they do not have to apply for a line of credit based on their own limited or lack of payment history. They also may be protected from making late payments if their parents continue to pay on the line of credit on time each month.
After allowing their children to remain on their accounts for several months or even a few years, parents can then transition their students to their own credit card accounts with the same creditor. Students may be given the same lending terms as well as the same interest rate as their parents on their own credit card accounts.
These options rank among the most favorable for helping students open and maintain credit card accounts. Parents and students alike are reminded to choose companies and creditors that are well-known and have positive reviews with other customers.
They likewise should monitor their credit reports to ensure that their payments are reported accurately each month. If they see fraudulent or wrong information, they should dispute it with the credit bureau immediately.
Students can learn positive financial behaviors by using credit wisely and responsibly. These card options remain most favorable for establishing good credit. They also teach the basics of money management that could help students become successful and happy adults.