Many students enter college armed only with credit cards provided by their parents. At some point during their studies, however, students may decide that they need their own credit cards. They can use credit cards to build good credit history in college, while also learning how to manage their own finances.
Unfortunately, it doesn’t always work out this way. College students often have trouble controlling their spending, and end up with mounting credit card debt while still enrolled in school. Young adults should view student credit cards as a means to learn sound financial habits that they can use long after graduation.
With so many cards to choose from, what are the best credit cards for college students? Before I get into the top 10 list below, first consider some of these tips and strategies for college students obtaining credit cards.
Important Credit Card Tips for College Students
1. Find a Basic Credit Card
Credit card companies have hundreds of products on the market, offered with every imaginable feature. Students should look for the most manageable cards they can find. By using streamlined products, young adults have fewer terms and conditions to follow, and they can avoid costly mistakes.
2. Always Pay Balances in Full
Responsible use of a credit card includes paying your minimum balance every month. Banks reap the benefits if you only pay the minimum balance on your credit cards, as they receive a stream of income from interest payments and enjoy a minimized risk of default. For students, paying anything other than the entire balance in full every month sets a disastrous precedent. They begin to look at their purchases as a series of monthly payments, without appreciating the eventual total cost of the items purchased.
As students begin to purchase items that they cannot afford, there becomes a psychological disconnect between their income and their spending. This can become an extremely costly lifelong habit that is difficult to overcome.
3. Avoid Overspending
Students may find it tempting to spend more than they have once they have credit cards. Avoid the temptation by using credit cards sparingly and never buying items that would be out of reach without credit cards. If the credit card company offers to increase the credit card limit, turn it down. Try to avoid using the card except for emergency situations or only using the card to pay for hotels, rental cars, and other services that require a card.
4. Take Advantage of Parental Guidance
Students should have an involved discussion with their parents before applying for a credit card. The conversation should include reviewing the card’s terms and conditions, fees, interest rates, and most importantly, the cardholder’s responsibilities when using the card. Roleplaying what to do when a friend or roommate wants to borrow the card, or when the credit card company offers increased limits, should also be part of the discussion.
5. Keep Credit Cards Safe
Students must keep credit cards safe and secure at all times. Credit cards should never be left unattended in order to avoid becoming an identity theft victim. Before making any purchase online, verify that websites are secure. In addition, students should monitor their credit history by ordering their free annual credit reports from the FTC. Students should immediately report any unusual activity on their credit cards to the credit bureaus as well.
6. Keep Credit Card and Bank Accounts at the Same Institution
Students can have their savings, checking, and credit card accounts at one bank. This way, they only have to go to one place to see all of their account information. Payments can be simple by using instant transfers between accounts, rather than making payments or writing checks to another institution.
7. Use One Credit Card
Students should limit themselves to a single credit card. This allows them to get in the habit of receiving, examining, and paying their credit card bills on time. Choosing a general Visa or a MasterCard instead of a gas credit card or a department store credit card ensures that only one card is needed, since these cards can be used almost anywhere credit cards are accepted. Only after a student has demonstrated a track record of responsible payments should they consider applying for an additional card with complementary features.
8. Remember the CARD Act of 2009
Like drug dealers, credit card issuers have undertaken the strategy of getting their customers hooked on their products in ways that cause them great harm in the future. In an attempt to restrain the banks’ predatory behavior, Congress included several provisions designed to protect students in the most recent credit card industry regulations (i.e. CARD Act of 2009).
Applicants under 21 years of age must show proof of income before they can open an account in their own name, or have a co-signer. Students under 21 years old who are authorized users on an adult’s account may not increase their credit limit without the adult’s permission. Finally, banks can no longer market credit card products to students by giving away free merchandise.
9. Never Use a Co-Signer
Students under 21 can circumvent the banks’ requirements by having an older friend or relative co-sign their application. The co-signer is the equivalent of someone who buys alcohol for underage drinkers. Co-signing a loan is not illegal, but it is a terrible idea. Both parties risk their money and their credit history in this situation. The most honest, hardworking person can still lose his or her job, miss payments, or have emergency expenses that can negatively impact the cardholder and the co-signer.
10. Avoid Rewards Cards
The popularity of cash back credit cards and travel rewards credit cards has skyrocketed, and many credit cards offer cash back and free travel as bonuses. Students should focus on finding credit cards with low interest rates, instead of applying for cards with rewards. Earning a reward for spending money does not set a good precedent for students. In addition, students generally do not earn or spend much money, so any reward points, miles, or cash back they receive will likely be insignificant.
We’ve included some rewards cards in our top 10 list below, but the cards have other financial benefits too.
11. Don’t Finance Tuition with a Credit Card
There are few trends in personal finance more troubling than hearing about students who finance their college education by charging their tuition to their credit cards. Credit cards offer terrible interest rates and, in most cases, subject all purchases to interest when cardholders carry a balance. Additionally, students can receive education-related tax deductions for the interest on their student loans, but they won’t benefit when their tuition is charged to a credit card and the card accumulates interest charges.
12. Look for Cards without Annual Fees
Without the prospect of earning many rewards, paying an annual fee is unlikely to be a worthy expense. Students should look for cards with no annual fees.
13. Consider Secured Credit Cards
Students who have credit problems may consider applying for a secured credit card. This is a product that combines many of the features of a standard credit card with the inherent constraints of a debit card. A secured credit card is backed by funds deposited by the cardholder into an account. That amount becomes your credit limit, and acts as security for the card.
Students using secured credit cards can’t spend too much money or go into debt. Secured credit cards include chargeback protection, and the ability for cardholders to build their credit. It is also easier to travel, as many hotels and rental car companies only accept credit cards.
Best Credit Cards for College Students
Citi Simplicity® Card
This card has no annual fee, no late fees, and no penalty interest rate. It also features price protection and extended warranty features.
This card allows you to set your due date at any time during the month
Bank of America Student Platinum Plus Visa
Bank of America has thousands of locations, so you can also open checking and savings accounts with a local branch when you open a new line of credit.
The card has no annual fee and comes with a student identity theft protection program that monitors credit and notifies cardholders of any changes. This can help them recover from an identity theft incident.
PenFed Visa Platinum Cash Rewards Card for Students
PenFed is the Pentagon Federal credit union. While it was originally created to provide financial services to members of the U.S. armed forces and their families, today, anyone can join.
This card is only offered to students who attend an accredited institution, and whose parents are credit union members. The card has no annual fee and offers 5% cash back on gas and 1% cash back on all other purchases. Like Capital One’s products, there are no foreign transaction fees with any of PenFed’s cards.
Citi mtvU Platinum Select Visa Card for College Students
This card is offered by Citi, one of the largest retail banking chains in the country.
There is no annual fee for this card, and students earn reward points for many common student purchases such as books, music, and fast food.
Capital One MTV Visa
Like Citi’s MTV-affiliated card, this card has no annual fee and can return increased rewards on purchases from MTV. Students receive five points per dollar spent on entertainment, two points per dollar spent eating out, and 25 bonus points each time the bill is paid on time. The 25 points only equates to a quarter, a small fraction of the interest and late fees owed, if bills are paid late.
Capital One does not charge any foreign transaction fees, a definite plus for students who plan to study abroad.
Capital One Journey Student Rewards Card
This card is a streamlined product that has no annual fee and returns 1% cash back on all purchases.
Students also receive an additional 0.25% cash back when they pay their bill on time.
Capital One Secured MasterCard
This is a secured credit card product that is worth considering.
There is a $29 annual fee for this card, but that is reasonable compared to many other secured card products that prey on unsophisticated customers with a long list of fees.
Citi Secured MasterCard
This secured card comes with a number of unique features, such as retail purchase protection and the opportunity to build your credit. There is a $29 annual fee for this card.
As with other secured cards, you have to make a security deposit in order to use the card. With the Citi Secured MasterCard, your deposit is turned into a CD, which will then earn interest.
Final Word
Financial pressure is the number one reason why students drop out of college. Students of all majors should seize the opportunity to learn sound personal finance skills while enrolled in college. A lifetime of smart financial decisions begins with choosing the right credit card. By choosing a streamlined card with few fees, students can get in the habit of paying their bills on time, and in full. Students that do this successfully, move ahead of their fellow graduates, leaving college without any credit card debt.
What are some of your best tips for college students applying for credit cards? Any specific cards that you like most?
(photo credit: Shutterstock)
