Should you get a credit card in college?
Establishing a strong credit foundation can set a young cardholder up for a lifetime of credit perks. But if you can't support regular on-time credit card payments, opening up a credit card for a college student may hamper their ability to get everything from apartment rentals to a car loan. Weighing the benefits and drawbacks of opening up a student credit account should help your college student embark on a secure student credit journey.
Types of credit card accounts for college students
Given that most college students will have no or very limited credit history, there are a few different types of credit cards to consider.
Student credit cards
Credit cards branded as student credit cardsmay sometimes have flexible credit requirements for approval, but usually feature lower credit limits and can have average to high APRs. However, the student can apply on his or her own and, with proof of college enrollment and some income, they can typically earn approval.
Become an authorized user
Adding a college student to an existing credit account as an authorized user can help build the student's credit history, but care should be taken to understand how the student can use the card and who is responsible for any of his/her expenses on the card.
Get a parent or co-signer
Some credit cards will allow parents to act as co-signers for the card, which uses the parents' credit history for approval, but pushes the responsibility of repayment directly on the student. However, if the student fails to make payments on the card, the co-signer becomes fully liable to repay the debt in full.
Secured credit cards
Secured credit cards require the cardholder to place a deposit down for approval. Once the deposit is made, the credit card's limit will equal the amount of the deposit. In this sense, the card issuer doesn't take on any risk: even if the cardholder hits their limit or does not make payments on the card, the debt can be repaid through the deposit. The main benefit of this type of credit card is that each payment helps to build up the cardholder's credit history.
Pros: Why you should get a credit card in college
Here's how a college student can benefit from enrolling in a credit card account.
Build your credit score
With every month of positive on-time payments, the cardholder will see that payment land on her/his credit report, which will help to build a credit score. Of course, this goes both ways: if the cardholder misses payments or is late on payments, aside from fees, the cardholder's credit report will include these negative reports, which will lower the cardholder's credit score.
Learn how to manage money
Understanding how APR works when you're carrying a credit card balance, how to budget to meet monthly payment obligations, and building a strategy to make your credit use work for you through rewards and cash back programs are all ways that having a credit card can build a foundation for financial success.
Security for emergencies
Beyond some protections that credit cards can offer, such as damaged or lost purchases, credit cards are often considered insurance for emergencies when the student is far from home. Of course, while a parent's idea of an emergency is a flat tire or a minor ER visit, a student's emergency might be a frightening lack of instant noodles: so be certain that these expectations are aligned before any spending takes place.
Convenience
Whether for college students or retirees, credit cards are almost synonymous with convenience. From the ballooning costs of text books to class enrichment event fees, having a card can make an expense a minor consideration in making a studious decision.
Rewards programs
With credit cards that feature category bonuses for spending on gas, groceries, and travel, college students are uniquely positioned to earn cash back and rewards points. Taking advantage of these programs can also reinforce the value of credit cards that can continue throughout their lifetime.
Cons: Why you shouldn't get a credit card in college
May hurt credit score
As noted above, missed or late payments will hurt a cardholder's credit score and a default will stay on a credit report for up to seven years (well past a student's graduation date). Only open an account when you have a plan in place to cover all costs, especially every monthly payment.
Temptation to spend
Parents should talk to their students about making responsible financial decisions as well as setting expectations about who will be paying off balances when the credit card bill or statement arrives. This can help inexperienced credit card users understand the basics of paying off a credit card balance and understand the importance of managing and avoiding long-term debt.
Alternative college student credit card options
If you are still debating if you should get a credit card in college, there are less risky options that give students a bit of flexibility while building in some preset limits on their spending.
Secured credit cards
Secured credit cards use a deposit as the credit limit and cardholders cannot go beyond that limit. This builds in a safety net to the card's use, but secured credit card payments also land on the cardholder's credit history: making them a great mix for the flexibility of a credit card, the security of limited spending, and the ability to build credit signals.
Prepaid cards
Prepaid cards are cards that can be pre-loaded with funds. Prepaid cards are not the same as credit cards and won't help in improving a student's credit score.
Debit cards
Debit cards transactions are not reported to the credit reporting agencies, so they do not have any effects to your credit score. Debit cards may offer students flexibility when it comes to making purchases with funds in their checking account, but won't be useful for improving or establishing credit.
