Student credit cards facts and advice
By Ben Woolsey
Going away to college is a monumental event on the road to adulthood. For many, this presents the first opportunity for living independently, away from parents and being able to ask for assistance whenever the need arises (especially financial assistance). Parents often open credit card accounts in their children's name or provide them with a companion card to their personal credit card account. Another option open to most college students is to receive a student credit card in their own name. Issuers of student credit cards have recognized the value of being the "first card in wallet" with young people in terms of building long term loyalty.
What is a student credit card?
A student credit card is designed for high school and college students and usually works the same way as any credit card that has been issued by a financial institution. In general a student credit card merely has a few more restrictions relative to nonstudent cards.
- Some require a parent or guardian to co-sign – This means the student's parents must agree to be the responsible party in case a student is unable to repay part or all of an outstanding credit card balance. In these cases parents or guardians have control over future raises in the credit limit.
- Lower Credit Limit – Typically, a student credit card is the first time a person has been responsible for credit. Therefore, the student does not have any credit history or rating for the bank to draw upon to make their credit decision. As a result, lower credit limits (typically $500 - $1,000) enable students to start building credit history while limiting the risk of loss to the bank that issued the card.
- Higher Interest Rates – Also related to loss control for the bank, interest rates are typically higher for student credit cards since students do not have a proven track record of promptly repaying loan balances at the credit bureau. Higher interest rates allow the banks to spread the cost of greater losses over the entire student credit card population.
Why get a college or high school student credit card?
A high school or college student credit card offers you the opportunity to enjoy the benefits of having credit, while also teaching the value and responsibilities that go along with those freedoms.
Taking the initial steps into financial adulthood can be both scary and exciting. Learning the benefits of using credit wisely and building a solid credit rating are important early milestones to achieve for the student.
Published: October 21, 2005
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