Best Student Credit Cards in 2018
- June 13, 2016
- Posted by: Jeff Gitlen
- Category: Credit Cards
Credit cards are an instrumental tool for just about anyone who plans on taking on the world as a financially independent citizen. In a nutshell, users utilize credit cards to build credit in their names. Having good credit is a necessity when making life decisions; for instance, they are key when applying for apartments, auto loans, house mortgages, and even student loans.
Building credit requires making purchases with a credit card and then paying off these purchases at a later date before the deadline. These actions contribute towards one's credit score - a numerical rating of credit history.
Making payments on time increases credit score, which is a good thing. Without a decent credit score, one will find themselves unable to pull the trigger when it comes to getting an apartment or new car.
It often takes time to build credit, so it is ideal to start as soon as possible. The perfect time to start building credit is at the onset of college. For many individuals, this is the first time they are going to spend extended periods of time outside of the protective financial shell of their parents or guardians. Typically, this is the first time when they are going to be spending their own money extensively.
If a college student is going to be spending money throughout college, it is almost folly not to spend this money through a credit card account. Every transaction can be put to good use in improving one’s credit score. While this sounds like an ideal scenario, there are plenty of risks associated with credit card use.
Credit card malpractice can lower credit scores to a dangerous level that bars people from gaining approval for major financial moves after college. The frustrating part is that though it is a simple problem to avoid - it is often very difficult to fix.
One of the major culprits behind low credit scores is lack of education on credit card use. To put this in perspective,we launched a survey in April that tested college students on their knowledge and use of credit cards. The results are startling, and they certainly point towards a need for improving the current knowledge.
Just to provide some context, only 40% off college students who were surveyed had a credit card in their name. When asked about penalty fees and charges associated with a credit card, less than 30% of students were knowledgeable of these types of penalties. Additionally, less than 10% of the sample knew the interest rate on their cards. Despite this knowledge vacuum, a solid half of the sample admitted to being afraid of accumulating credit card debt.
With these statistics in mind, it is doubly important to educate the masses on just what a credit card is, how it works, and how it affects one's financial standing.
The main objective of this course is to educate students in high school about to enter college, and those already in college, on credit cards. Some background history on credit cards is provided for some fun reading as well as some context on the purpose of credit cards. The basics of these cards are going to be outlined, and some advice is going to be given on how to get approved for cards. Of course, the proper use of credit cards will be discussed, and there will be some pointers on what to avoid when using a credit card account. Let this instructional piece be the first step towards building a better and complete understanding of the credit card system!
Credit Card History
The idea of a credit card is not a new concept. Starting in the late nineteenth century, people exchanged goods under the concept of credit. The difference between then and now is the form of credit. For instance, coins and ”charge plates" were used as currency during these early transactions.
These concepts developed further during the twentieth century with department stores and oil companies. These businesses started issuing proprietary cards to their customers with the intention of providing smoother customer transactions and improving loyalty.
These credit card predecessors did not reach the level of popularity today, however. They were issued to local customers only, and they were only intended for use at their father business.
The next major step towards the modern credit card was made by a banker named John Biggins. The bank that Biggins worked at began issuing a bank card to its customers in 1946; the bank card was dubbed "Charg-It". Customers could use this card to make purchases, and the bill was sent to the bank. After reimbursing the business who sent the bill, the bank charged its customers later for those purchases. This still was not quite a modern credit card because this system only worked locally, and these cards were only issued to members of the bank. A similar type of card appeared in 1951 from the New York Franklin National Bank, but this was still limited to account members within the bank.
While this does not sound like a credit card, the Diners Club Card was the next major step towards modern credit cards. This has a bit of a story to it. In 1949, a man named Frank McNamara was out to dinner one night at Major's Cabin Grill in New York, and at the end of the night, he got stuck with the dinner bill. Upon realizing he did not have his wallet that night, McNamara came up with the idea of an alternative to cash. He got out of the bill that night, but several months later he returned with a card cut out of cardboard to pay off the bill. Thus the first credit card was born.
Two years later, the Diners Club Card was used by 20,000 people which made it the first credit card to reach widespread use. By 1961, the cardboard Diners Club Card had upgraded to plastic cards. The debut of the Diners Club Card sparked a movement by other companies that were starting to have some of the same ideas as McNamara and his partners.
In order to compete with the Diners Club Card, American Express (Amex) decided to establish their own card. In 1959, Amex released a purple charge card. In fact, this was the first plastic product in the credit card industry, a trend that all other companies followed. Originally meant for travel expenses, the Amex credit card was upgraded to an all-purpose card for general purchases.
The modern credit card system got its start with the formation of the InterBank Card Association in 1966 which is now formally known as MasterCard Worldwide. The Visa program was formed later which created the modern credit association we have today. Banks that issued credit joined either of these two groups which helped make credit cards widely available to the public. These associations developed the payment processing procedures that are typical of credit cards today. Credit-issuers allowed its customers to start carrying credit card balances over each month while some kept requiring full balance payments each month.
Since the 1950s, credit cards have blossomed into an instrumental tool in the financial system. They are essentially necessary for citizens to be approved for financial moves such as obtaining mortgages and other loans. Future improvements of the system might eliminate the need for a plastic card, but for now just about everyone's wallet is going to have one or more plastic credit cards occupying space.
What is a Credit Card?
Now that the history lesson is over, it is time to delve into the details on just what a credit card actually is. There are plenty of benefits, penalties, and terms & conditions that are associated with credit cards which will all be explained.
First off, the difference between a debit card and credit card must be explained.
When someone uses a debit card in their name, they are spending their money from their bank account. Basically, you are spending your money up front; it is the same exact thing as spending cash (it is just electronic instead). When making a purchase with a credit card, you are not spending your money up front; in fact, you are spending the bank's (or whoever issued the card) money. Instead of subtracting money from your bank account with a debit card, you are adding debt to an account in your name with the credit card issuer. You are expected to pay this money back eventually, but this will be explained later.
So who issues credit cards?
There are two major types of companies that offer credit cards: banks and credit unions. Banks are the more well-known credit card issuing company. Since they are able to issue mortgages and other types of loans, it is no surprise they offer credit cards that loan out payments for general transactions.
A credit union is a newer type of credit card issuer. They are a collection of companies that pool resources together into a non-profit union. They often have lower credit card interest rates than most bank credit cards.
While these two issuers account for most credit cards, there is another type of issuer: a credit card network. These networks handle the credit card transaction processes, but some of them issue their own cards (e.g. Capital One Journey Student Credit Card or Discover it Student Credit Card).
Whether a bank, credit union, or credit network, all these companies issue credit cards to their customers. They are the ones who provide payment for transactions, and they are the companies that consumers pay back with each credit card bill.
Just a recap: A credit card is a payment card that borrows money from a credit card issuer in your name; this borrowed money is debt that is expected to be paid back. With these basics down, it is time to move on to important details regarding credit cards.
Basic, yet essential, knowledge includes things such as interest rates, credit limits, penalty fees, and credit card rewards. Understanding what these are and how they work is absolutely essential to understanding how a credit card works.
What are interest rates?
There are tons of credit cards out there with varying interest rates. In general, you want a credit card with low interest rates. These credit card interest rates vary depending on creditworthiness and the market. Generally speaking, better creditworthiness warrants lower interest rates. There are several common types of these rates: general purchase, cash advance, and balance transfer. If you play your cards right (no pun intended), you should never have to worry about an interest rate.
Starting with the most common and important rate, general purchase interest rates is a percentage that is applied to a general transaction amount made with a credit card. Here is an example. You buy $100 of supplies during a billing cycle, and your general interest rate is 15%. The interest owed on that billing cycle would be $15 in addition to the $100 that was spent; however, this interest is not applied if the balance on the loan is paid in full during the billing cycle. This is the most important aspect of general purchase interest rates. If you pay your credit card bill in full each billing cycle, you will never have to pay interest on those purchases.
Balance transfer interest rates are assessed whenever transferring debt between credit accounts, so it is essentially a rate-based fee for making that transfer between accounts (balance transfers between accounts are sometimes done to save money on general interest payments).
A cash advance interest rate is assessed when performing a cash advance with a credit card (a cash advance is done by simply withdrawing cash from an ATM with a credit card). These interest rate charges are taken as percentages of either the cash advance or balance transfer amount. Avoiding these charges is simple: do not perform a balance transfer or cash advance and there is no interest rate to worry about.
What are credit limits?
A credit limit (sometimes referred to as credit line) is pretty simple to understand; it is the maximum amount of money you can borrow from your credit card issuer. With a credit card limit of $1,000, you are only able to purchase up to $1,000 of goods with that card. These limits are set in place to keep consumers from borrowing way too much; those with good credit history get better (higher) credit limits. In general, most first time credit cards will have very low limits.
Are there any fees associated with credit cards?
So there are plenty of general fees in addition to interest rates that are assessed for certain practices. Annual fees are charged each year for simply having a credit card, but many card issuers offer cards with either no or low annual fees. Many cards have over-limit fees - a fee that is assessed when spending over the credit limit. In addition to balance transfer and cash advance interest rates, some credit cards have additional fees for making these transactions. Some cards also have foreign transaction fees; a percentage of a transaction made out of the country. Here is a recap: several common fees are annual fees, over-limit (or overdraft) fees, cash advance and balance transfer fees, and foreign transaction fees.
Are there rewards for using a credit card?
These benefit packages vary considerably between cards, but they follow a somewhat general guideline. Plenty of credit cards offer a rewards points program with their credit cards. Card holders can build rewards points for making transactions and redeem them for cash or gift cards. For the most part, these rewards programs amount to a 1% return on transactions, but some of them offer up to 5% back on certain niche categories. Some cards offer an introductory deal that involves their reward points systems.
A common example would be 30,000 points for making $1000 of purchases within three months of opening an account. Other benefits may include customer service tools that vary widely; these benefits are always outlined in the terms and conditions of a card.
How to Get Approved for a Student Credit Card
Most students out of high school are not going to have a credit history for card issuers to research. Luckily, applying for a credit card today is quick and easy since most card providers have an online application that offers instant verification of approval. Normally, credit card issuers delve into credit history which involves previous cards owned and full records on debt payment history, but those without a credit history need to rely on different information.
In general, these applications ask for several pieces of information. Basic questions ask for name, address, phone number, email address, and social security number. One of the most important pieces of information is job information (especially for those without a credit history). The applications often inquire on place of work, length of employment, and salary. Card issuers need this information to determine whether an applicant will be able to make debt payments, so it is an extremely important measure that issuers require. This is often the determining factor of credit card approval as well as credit limit definition.
There are a couple age limitations when it comes to applying for a credit card. Cards are only issued to those who are 18 or over. Those who are between the age of 18 and 21 are required to provide additional documentation that verifies their income.
After the approval process is completed, you are either approved or not approved. If you are not approved, information is provided on why you were not given a credit card. If you are approved, then you will be assigned a credit limit; the credit card will be sent in the mail within two weeks.
One important aspect of the credit card approval process is the type of card being applied for. There are different standards on credit cards, so some are harder to get approved for while others are easier.
There are two broad categories of credit cards to be familiar with: secured and unsecured credit cards.
A secured credit card is meant for people with either bad or no credit history. It comes with harsh penalties and interest rates for credit malpractice as well as limited benefits, and credit limits often start out very low compared to unsecured cards. Additionally, secured credit cards require a down payment before final approval.
Unsecured cards have harsh penalties and low credit lines because they are meant to force the card holder to build good credit. For a new credit card applicant, this type of card may be the only option, but it opens the way towards establishing favorable credit history and better credit cards in the future.
An unsecured credit card does not have the same limitations as a secured card. Applicants with good credit history can get a good credit card, and applicants with excellent credit history can get an excellent credit card. These cards come with reward and benefit packages that offer some return on making purchases; additionally, those with better credit are approved for higher credit limits.
The chances of getting approval for an unsecured credit card as a new applicant are better if proof of sizeable income is provided. What is sizeable income for a credit card? It is a truly relative question since different cards are going to require different size incomes. It is highly advisable to apply to unsecured cards first before looking for a secured card.
One piece of advice for students is to apply for a student credit card because it takes into account the lack of credit history and financial situations that are typical of a college student. Here are a few popular student credit cards: Discover it® for Students, Citi ThankYou® Preferred Card for College Students, or the Journey® Student Rewards from Capital One®.
How to Properly Use Student Credit Cards
Credit cards require discretion when being used, and there are several important considerations to make when using them.
One of the first and foremost practices that every card holder needs to adhere to is making payments on time. Unnecessary interest and penalty charges are avoided if payments are made on a credit card balance before the end of a billing cycle. Adhering to this principle literally eliminates all additional expenses that come with a credit card.
If you make you payments on time, there is no difference between making every transaction with a debit card; in other words, the final amount spent does not differ.
With that being said, another consideration factors directly into the previous points: how much you spend with the credit card. It is obviously much harder to make a payment on time after a month of excessive spending with a credit card. Using the credit card for only necessary purchase reduces the amount of potential fees and interest payments from overspending. Many of the credit cards on the market come with resources that make tracking expenses simple, quick, and easy. There are resources available on computers that provide balance amounts and due dates; additionally, there are mobile apps that can easily access transaction history and card balances.
Another key aspect of credit cards that can increase their value is the rewards package that is offered. Fully utilizing these benefits can reward a card holder considerably with cash back redemptions or some sort of financial return. Capitalizing on this is a great way to save money or earn a free gift like covered airfare. Be sure to research how the benefits package works. Some cards offer more cash back for niche items; for instance, purchasing groceries for some cards earns 5% cashback compared to 1% cash back on other types of purchases. Understanding which purchases earn more is key in extracting the most out of a credit card.
Here is another recap. Managing a credit card is easy; it just requires diligence. First, make your payments on time. Just to reiterate, make your payments on time. This is extremely important if you do not want to make interest payments on your credit card. Second, use the credit card for essentials only and eliminate extraneous expenses. Maintaining a low budget is important if payments are to be made on time. Spending smartly makes the first task much easier, so these two considerations are intertwined and extremely important. Finally, card holders can reduce their overall expenses by cashing in on the benefits package.
Dangers of Improper Credit Card Practice
One of the first and foremost dangers of credit malpractice is developing bad credit history. This is a huge problem for a major reason; it bars the card holder from reaching important life milestones. One of the prime examples is home ownership. In most cases, home owners need to apply for a mortgage in order to finance the move into a house. This move requires good credit history because lenders are not going to trust a borrower with a bad history of making debt payments.
Credit card malpractice is crippling, so it is extremely important to adhere to the proper credit card use guidelines that are outlined in the previous section. One thing to remember is that everything that happens with a credit account is recorded. Every on time payment is recorded, and every late payment or penalty is noted. All of this is recorded into a credit report, and this report is accessible by any company or association that needs to research credit history.
Practices such as habitual late payments directly affect credit score negatively. Another factor that drops credit scores is high credit utilization. Ideally, you should use around 30% of your total credit limit. For example, if you have a $3000 credit limit, you should spend around $900 on your card. Using more than this might also raise your debt-to-income ratio. This is something lenders look at to determine if a borrower's creditworthiness, and high ratios indicate lack of income compared to accruing debt. It essentially indicates poor potential to pay off debt.
Credit card malpractice can lead to several extremely bad consequences on a credit report that are known as negative, or derogatory, marks. These marks drop credit score significantly, so it is best to avoid these. The next few paragraphs provide details on several negative credit marks.
This is the most damaging mark that can go on a credit report. It is one of the last resorts when seeking relief from a bad debt situation. Bankruptcy involves entering a legal action that requests release from debt obligations. The reasoning? The funds are literally nonexistent, and there is no way debt can be repaid. One way to go bankrupt is to overspend with a credit card and build up too much debt.
This has to do with defaulting on a mortgage payment which is bad news for a credit score. If a borrower falls behind on mortgage payments to the point of foreclosure, the mortgage provider seizes the house as collatoral; the house is then sold to make back the loan amount.
These occur when a card holder cannot make debt payments and the account is sold to a third party debt collector. They are noted in a credit report, so it is best to make debt payments on time in order to avoid changes to an account.
This is recorded after someone fails to pay back money owed in taxes. This is serious and unique because a tax lien can indefinitely remain on a credit report.
A lawsuit that requires payment of damages goes on a credit report as a negative mark.
Are these negative marks permanent?
Not exactly. These derogatory marks can last a long time, so they have the potential to hinder someone greatly. The best course of action is to adhere to good credit card practice; eventually, these marks lose their significance over time. For example, a negative mark that is fifteen years old is not too significant if it is followed by fifteen years of solid credit payments.
Best Credit Cards for College Students
Having a student credit card has many perks and can be beneficial for you to have on hand. Many of the credit cards available for college students offer special financing, lower interest rates, and even interest-free financing on purchases.
If you are currently in college and you are looking for a credit card, check out the following options. We think you will find one that suits your needs well.
Citi ThankYou Preferred Card for College Students
The Citi ThankYou card is a great choice for college students and it offers a couple of different benefits. This card allows you to earn points at some of your favorite places.
For example, you will earn two points for every dollar you spend on entertainment and at restaurants. You will also receive a point for every dollar spent on all other purchases. An additional bonus 2,500 points will be earned when you spend $500 within the first three months of having the card.
There is a 0% annual fee and you will receive an introductory interest rate of 0% for the first seven months.
Discover It for Students
The Discover It Student Credit Card is perfect for students who have good grades and good credit. The card offers 5% back on a set of rotating categories each quarter. You will receive 1% back on all other purchases made throughout each quarter. Students benefit from no annual fee and a 0% interest rate for the first six months.
In addition, the card provides you with a free FICO score report. One of the reasons students love this card is because you are allowed to have a co-signor, which helps secure the card and improves your chances of being approved.
BankAmericard Travel Rewards
If you like to travel, the BankAmericard Travel Rewards card is ideal for you. You can earn one and a half points for every dollar that you spend on your card. After you spend $500, you will receive 100 travel rewards as a perk. The card offers a 0% introductory rate for the first year on all of your purchases. In addition, there is no annual fee attached to the card.
This card is ideal for students who are planning on going overseas or traveling abroad. The card has a safety EMV chip located in it to help ensure your identity is always safe.
Journey Student Rewards from Capital One
The Capital One Journey Student Credit Card is ideal for students as it allows you to earn 1% back on all of your purchases. You will also receive additional bonus points every time you pay on time.
After you have made five payments on time, you will receive a bump up in rewards and you will begin receiving 1.25% back on your purchases.
Sallie Mae MasterCard
The SallieMae MasterCard is different than the other options on this list, but it does offer a lot of benefits for students. You will earn 5% back when you spend money at bookstores. In addition, you will earn 5% on your groceries and gas. For all other purchases, you will receive 1% cash back.
There is no annual fee and the introductory interest rate is 0% for the first 15 months. The best part about this card is that all rewards are redeemable to be applied to your loan, cash back, or a statement credit.
More About Choosing a Student Credit Card
If you are looking for a credit card, there are many options for students. You will find that the rewards are good and you can earn more cash back when you use your card within the first few months of using it.
Before you choose a card, think about whether or not you want cash rewards or travel rewards. In addition, decide if a credit card is the right move for you. You should try to avoid placing all of your purchases on it because you do not want to drown in debt while in school or soon after school.
College Student Credit Card Survey
So far this year we’ve released the results of three different surveys. In January we found that current college student loan borrowers know almost nothing about student debt. In February, we found that current student loan borrowers would do just about anything to pay off student debt. Last month in March, we found that current college students struggle to understand the basics of credit scores and reporting.
Over the last few weeks our team traveled to three different college campuses to survey even more college students. Over that course of surveying, we asked current college students a series of questions about credit cards.
Credit cards are a powerful tool when used correctly. Student credit cards can help young adults build credit, earn rewards, and learn financial responsibility. However, when used incorrectly credit cards can be as crushing as high interest student loan debt. In February, the New York Federal Reserve reported that credit card balances rose to $733 billion by the end of 2015’s fourth quarter.
In our April survey, we were able to collect responses from 468 undergraduate and graduate students at three different 4-year institutions (2 public, 1 private). We surveyed at two colleges in the Bay Area, and at one institution on the East Coast.
Our goal was to find out what current college students do and do not know about credit cards. Here are the results of our survey:
1. Do you have a credit card in your own name?
38.46% of students surveyed currently had a credit card in their own name.
Questions 2 through 9 were asked only to individuals with credit cards.
2. Do you know the current interest rate on your credit card?
9.44% of students surveyed reported that they knew the current interest rates on their credit cards.
3. Do you know the late payment charges on your credit card?
20.56% of the students surveyed reported knowing the late payment charges on their credit cards.
4. Do you know your current credit card balance limit?
58.89% of the students surveyed reported knowing the balance limits on their credit cards.
5. Do you know the over-balance fee?
28.89% of the students surveyed reported knowing the over-balance fees charged on their credit cards.
6. Do you currently have a balance on your credit card?
67.78% of the students surveyed reported having a credit card balance.
7. Do you know, approximately (within $100), what your credit card balance amount is?
93.33% of the students surveyed reported that they knew their current credit card balance within $100.
8. Does paying your credit card on-time impact your credit score?
71.11% of the students surveyed believed that paying their credit card bill on-time would impact their credit scores.
9. Do you have more than one credit card account?
23.33% of the students surveyed reported that they currently have more than one credit card account.
Questions 10 through 12 were asked only to individuals without credit cards.
10. Have you considered opening up a credit card account?
43.75% of the students surveyed reported that they have considered opening up credit card accounts.
11. Are credit cards an important tool for building consumer credit?
71.53% of the students surveyed believed that credit cards are an important tool for building consumer credit.
12. Would you consider yourself afraid of the possibility of accumulating credit card debt?
46.53% of the students surveyed considered themselves afraid of the possibility of accumulating credit card debt.
We were surprised to find that such a small percentage (38.46%) of current college students even had credit cards. Memories of the financial crisis and rising student loan balances may be deterring young Americans from utilizing credit cards. Additionally, in 2009, the Credit Card Accountability Responsibility and Disclosure Act, aka the Credit CARD Act, clamped down on marketing at colleges and universities.
Also surprisingly, only a fraction (9.44%) of current college students with credit cards knew their current interest rates. In our January survey, we found that only 7.9% of current college students with student loan debt knew their interest rates. Yet, two-thirds of the students with credit cards currently reported carrying a balance.
We held off from asking respondents for a specific balance amount. Our surveying team, and our initial respondents, felt uncomfortable with the question.
On a positive note, a high proportion of respondents did believe credit cards were important when building credit. However, those two questions (#8 & #11) were asked in a positive bias.
Though we may be starting to sound like a broken record here at LendEDU, our nation has a serious issue. There needs to be greater personal finance education for young adults, especially at the high school level.
Special thanks to our surveying team for walking over 100,000 steps to collect these responses.
There is quite a bit to remember when it comes to a credit card, but none of the concepts are terribly difficult to understand. If a card holder can make payments on time habitually, there is no reason to have extensive knowledge of the credit penalties. The most important way to maintain a credit card is to limit spending compared to income and pay off 100% of accrued debt every billing cycle. With these actions, there is no reason one's credit score can hurt them considerably. As mentioned much earlier, good credit card practice opens up avenues towards making life improvements such as buying a new car or moving into a new home.