When, why, how should you graduate from a student credit card to a regular card?
Upgrading to a regular card has many pros and zero cons ? if you do it right. Here's how
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Congratulations – you’ve graduated from school. Is it time for your student credit card to graduate to a regular one, too?
It’s not a bad idea to consider, experts say. But like everything else in your new financial life, approach this change cautiously and thoughtfully to achieve the best results.
Here's everything you need to know about graduating from a student card to a regular card while also protecting your credit.
See related: First card dilemma: Student card vs. secured card
Graduating from a student card: What you should know
1. Keep your student credit card open
Whatever else you do, don’t start by canceling your student card.
“That’s a mistake,” said Beverly Harzog, a consumer finance analyst and credit card expert. “This is your first card. You’re young. You’ve got a very short credit history at this point, so you don’t want to cut off the only credit you might have.”
- Your student card shows potential lenders of all kinds if you pay your bills and how – in full or partially; on time or late. It also gives you a credit limit, which, whatever its size, is like the first step on a flight of stairs. If you cancel it, the next card issuer is not likely to begin at the second step, but rather start back again at the first.
- If you close your student credit card, and “that’s the only form of credit that you have,” said Lewis Goldman, the chief marketing officer of LendKey Technologies, an online, student-loan refinancing company, “you’re not proving, at this current moment, that you can pay somebody back.”
- Lenders also look at a potential cardholder’s credit utilization ratio. This is the amount of credit a customer is currently using as a percentage of the total credit, from all cards, available to that customer. It's also the second most important factor in credit scoring calculations, after making on-time payments. If you close the card, you'll eliminate this credit scoring factor.
If you have only one form of credit, for example, a student credit card with a credit limit of $1,000 and a $200 balance, your credit utilization is 20 percent. Card issuers like to see credit utilization ratios of 30 percent or lower.
“That’s the gold standard,” said Harzog, who recommends that students keep theirs at 10 percent or lower. “That part of the FICO score, it can give you a little boost,” she said.
But if you cancel your student card before getting another one, you have no credit utilization at all – another no-no.
One way students – or anyone with a low credit limit – can head off the credit utilization problem: Don’t let your card balance rise.
“Try and pay off your credit card balance in full every month, and, preferably, every week,” said J.R. Duren, a credit card analyst at HighYa.com, a consumer reviews website. That way, he said, “your scores will stay as high as they can be.”
See related: FICO's 5 factors: The components of a credit score
2. Ask your issuer to upgrade your student card.
Often, a lender will reach out to you before you even get around to considering a card change.
Goldman, now of LendKey, used to work at Citibank, and recalled how often the bank would reach out to recent graduates to see if they wanted to swap out their student cards for a regular one.
“A lot of times, the card company will want to graduate you,” Goldman said. “It’s a continuation of the card, just changing the kind of card it is.”
3. Or graduate your student card yourself
If your card issuer doesn’t reach out to you, wait a few months before you make that call yourself. Get a job. Figure out what you’ll spend on rent and food.
“I’d say you should consider getting a new card once you create a budget based on your expenses and your income,” Duren said. It’s easy to assume your new income stretches further than it actually does.
Once you understand your new financial reality, you’re better equipped to step up to the higher credit limits that come with regular cards, he said.
Goldman also advised keeping an eye on your credit score. “I wouldn’t apply until you have a score of 700 or higher,” he said.
Duren recommended subscribing to a free credit reporting service like Bankrate. “You can keep an eye on any suspicious accounts pop up,” he said, “verify that all the information on your accounts is correct and take action if your score suddenly drops.”
But three to six months out, if you are still limited to a student card, it’s not a bad time to phone your card issuer. Tell them, “'Look, I’ve just graduated,'” Goldman said. “'I want to upgrade my credit card and I’m looking at some options.'”
See related: Credit monitoring: When is it worth paying for?
4. Know what to look for in a new card
You’ll be best served at this point if you know what you want in your next card, he said. Are you after cash back? Airline rewards points? The lowest possible interest rate? Then you can narrow your search for a card tailored to your needs.
- If you’re wondering what you’ll be eligible for, you can also ask the bank to do a “soft pull” on your credit, Goldman said. It’s only a preliminary look, but it will give you a sense of what type of card you may be eligible for. Unlike a “hard pull,” it doesn’t go on your credit report. Too many hard inquiries into your credit can lower your score.
- If the bank is reluctant to give you what you want, this is the time to sell yourself, Harzog said.
- If you’ve had a low credit utilization ratio, if you’ve paid your bills in full and on time, if you have a well-paying job, if you got good grades in college – these are all the kinds of things that card issuers like to see that remind them you are responsible and likely to pay their bills on time and in full as well.
“Anything that makes you look hard-working and responsible, that’s all to your favor,” she said. “Use it.”
If, however, you haven’t yet nailed down that dream job, or you made some financial mistakes in college, then be prepared to be flexible.
See if a parent is willing to add you as an authorized user to one of their cards with an excellent payment history and low balance, Goldman said. The history of that card will then appear on your credit report, boosting your score. Or consider talking with your bank about increasing your credit limit, which will help you lower your credit utilization and improve your credit score.
Then, once your financial situation has improved, you can go back to your bank and discuss options for upgrading to an unsecured card once again.
5. Consider the benefits of graduating to a regular card
There’s no reason to not switch your student card to a regular card if you can qualify for one, experts said.
Student cards usually have higher interest rates and lower credit limits than regular cards, so there’s a built-in advantage to swapping them out once your credit scores are in good shape.
So, before applying for more cards, first see if your current bank will let you transition from a student card to a regular card.
“Go the easy way first,” Harzog said. “If you’ve done a good job, in most situations you can.”
Down the road, if you want add another card to your wallet, look around for one that complements your existing card. “Maybe you had a student card that had no perks,” Harzog said. “Or it had minimum rewards or cash back, and you’d like to get something with airline rewards or something like that.”
Take your time and think about what you need, experts say. When it comes to credit cards, there’s no one-size-fits-all solution. “It’s different for every person,” Harzog said.
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