Whether you're borrowing money for a home or a car or to get a credit card with a cheaper interest rate, your credit report and score play a significant role in your financial life. You generally don't have enough financial history if you're young and still in school to be able to build a credit report. According to the Consumer Financial Protection Bureau, 26 million American consumers, or 11% of the adult population, had credit histories that were either too short to be scored or did not exist with the three major credit bureaus.
Although obtaining a credit card and making consistent payments will help you improve your credit, getting accepted might be difficult. Student cards are one option open to college students.
Security Advance
11% of 26 million adult Americans lack any credit history. A student credit card is one way to do this, as it gives you a chance to do so while you're still in school. There is no security deposit necessary, unlike secured credit cards. Earning cash back, airline miles, and other benefits are possible. Make it a practice to pay your debt in full each month to prevent incurring interest fees.
Why Do I Need a Student Credit Card, and What Is It?
Credit cards for students operate similarly to regular credit cards. Since they are unsecured, neither collateral nor a security deposit is required.
Student credit cards are more likely to be approved than college students' other types of credit, such as personal loans or auto loans. A student credit card can be a helpful tool as you finish school if you use it responsibly, allowing you to pay for necessary expenses and establish credit simultaneously.
Some credit card companies let you switch your account to a normal card once you graduate. You'll probably be eligible for a larger credit limit if that occurs. After your student status expires, other cards will expire shortly after you graduate.
You'll probably need to present evidence of your student status to get a student credit card, such as a current and unexpired student ID card, an invoice from the institution or university, or a transcript.
Why You Should Apply for a Student Credit Card
Improve Your Credit
You probably haven't had a chance to establish credit because you're a college student. Your credit history and credit score greatly impact your life, from determining whether you can rent an apartment to determining if you can buy a car.
You receive a line of credit when you open a student account, which is your spending cap. Your available credit is your credit line less any existing liabilities; therefore, adding that credit line increases it. Keep your balances low to lower your credit usage ratio, which accounts for 30% of your FICO credit score. This ratio measures how much of a borrower's total available credit is currently being used.
Your credit score, which makes up 35% of it, is built up as you start using your card and making payments. A strong credit report is created when you pay your bills on time each month.
Have an emergency credit card on hand
You have a flat tire as you're heading home. You need to return home immediately because a family member gets sick. Whatever the circumstance, unexpected expenses could arise at any time. If you have a credit card, you can immediately pay those expenses. A credit card gives you additional security because emergency services, like towing firms, could require you to pay with plastic depending on where you live.
Earn Benefits
You can benefit from rewards on your purchases when you use a student credit card. For instance, you can receive 5% cash back with the Discover Student Cash Back card on purchases made at grocery shops, restaurants, gas stations, and some PayPal transactions, up to a quarterly maximum. On all other purchases, you can also get 1% cashback.
Remember that rewards are only a way to entice you to spend more money. Be wise! Only use your card for necessary transactions to minimize interest charges and excessive debt.
A Student Credit Card's Risks
Student credit cards have drawbacks, just like any other type of debt. They frequently feature high annual percentage rates (APR), so you will be charged interest if you spend more than you can afford to repay by the due date. These interest rates normally range around 20%, so fees on delinquent bills quickly add up.
The ease with which purchases may be made with credit cards poses the biggest risk because it might influence you to make poor financial decisions and purchase items you cannot afford.
Create a budget based on your monthly cash flow and spending to create financial discipline. Use the credit card only for essential expenditures, and settle the balance in full each month.
