Credit Cards and College Students

Good credit is a necessity in order to qualify for a mortage or car loan - and the better your credit, the better the interest rate you will get.

These cards have great features like no annual fees, 0% APR introductory periods, and other benefits such as cash back and gift certificates.

In order to start building excellent history, many of us make our first credit applications when we commence college. Usually this is done through a student credit card.

What is special about student credit cards? First of all, they are designed specifically for students. Usually it is relatively easy to obtain this first young person's credit card, although sometimes a cosigner may be required. The most common cosigners are parents. The cosigner is taking on risk because they are agreing through contract that they wil pay the debt if the student does not pay. Students need to understand and remember that their cosigner is putting themselves on the line and risking not just money but their own credit score and reputation.

Another typical feature of student credit cards is that the limit is usually set quite low, for example $500. The credit card companies argue that because students usually have low or no salaries, that a low limit is an important safeguard. Another common reflection of the higher risk credit card companies regard students to be are the slightly higher rates that often apply to student credit cards.

To learn more in detail, read this GAO Report to Congress on College Students and Credit Cards.

Student credit cards offer the following benefits:

1. Begin building a history of responsible use and a good FICO score.

2. Learn financial responsibility and budgeting skills.

3. Learn about how credit scores, credit limits, monthly payments and interest rates really work.

Of course sometimes credit cards and college students result in some hard lessons. For example, for young people who succumb to temptation and charge impulsive purchases to their credit cards, instead of having clear priorities and budgets, may quickly find they fall behind in payments and must ask for help.

Even for students, missed payments or spending in excess of the credit card limit, will have immediate and serious consequences. Fortunately, most college students don't get into trouble. And those who do learn from their mistakes early in life and with relatively small amounts of money involved.

Student Credit Cards