By LOUIS DENICOLA
Your credit can impact your ability to rent an apartment, take out a loan or refinance your student loans. That's why building credit from an early age can be important.
If you want to get started while you're in college, a student credit card might be right for you.
Why a student credit card?
You don't need to apply for a student credit card if you're a student, but standard credit cards may have stricter requirements. For example, the Wells Fargo student card requires that you prove your enrollment status and have an annual income of at least $3,000. Wells Fargo suggests considering a regular (non-student) cash back card if your income is more than $12,000.
Whether you're a student or not, if you're under 21, you'll need to show proof of independent income to qualify for a credit card. If you don't meet the income requirements, you'll need someone who's 21 or older to co-sign on the card. Your co-signer's credit may affect your application's approval, and co-signers are responsible for paying the credit card balance if you don't.
Alternatively, one of your parents could add you to one of their card accounts as an authorized user. For you to build credit as an authorized user, the card issuer has to report the account's activity as if it's yours. Contact the issuer to find out whether this is the case with your parent's card.
What to look for in a student credit card
You can apply for a credit card from any issuer, not just the financial institution you already use. Take time to consider the different options, and determine which card is best for you. The following factors can help guide your search.
- Rewards: Some student rewards cards offer at least 1 percent cash back on all purchases, and others increase the cash back for spending in certain categories or offer extra rewards for good academic behavior.
- Foreign transaction fees: This is a fee, often 3 percent of the amount spent, for purchases made in a non-U.S. currency. If you're planning on studying or traveling abroad, bringing a credit card that doesn't charge a foreign transaction fee may be a good idea.
- Penalty annual percentage rates (APRs): Credit cards come with either a fixed interest rate on unpaid balances or a variable rate that's determined by your financial profile when you apply for the card. In either case, if you're late with a payment, you might have to pay a higher penalty APR on future purchases.
- Late-payment fees: In addition to increased interest, you may have to pay a fee - $35 to $37 for the cards here - if you're late with a payment. However, several student credit cards waive the fee for the first incident.
- Annual fee: Some credit cards charge a fee each year just to keep the account open.
Six of the best student credit cards
The following credit cards offer rewards and perks that may appeal to students, and none of them charge an annual fee. Most of the cards have a variable interest rate between 11.40 and 24.24 percent, depending on your creditworthiness.
Discover it® student cards
Discover offers two student cards: the Discover it® for Students and the Discover it® Chrome for Students. The difference is in the rewards. The Chrome version offers 2 percent cash back on purchases made at gas stations and restaurants on up to $1,000 in combined purchases every quarter. The other card gives 5 percent back on up to $1,500 in purchases at different types of retailers each quarter. The bonus categories change every three months, and past examples include restaurants, grocery stores and Amazon.com.
If the categories don't align with your usual spending habits, they may not be appealing, and neither card offers a sign-up bonus. But, both cards give 1 percent cash back on all other purchases, match your cash back at the end of the first year (if you're a new card member), and offer an extra $20 each year you have a 3.0 GPA or higher. In addition, neither card charges a foreign transaction fee nor a penalty APR, and both cards waive the first late-payment fee (up to $35).
Journey® Student Rewards from Capital One®
Cardholders earn 1 percent back on all purchases, but can get 1.25 percent back if they pay their month's bill on time. After five on-time monthly payments, your credit limit may increase, which could help your credit score. There's no foreign-transaction fee nor penalty APR, but the late fee may be up to $35.
BankAmericard Cash Rewards™ for Students
You'll earn 3 percent back at gas stations and 2 percent back at grocery stores for the first combined $1,500 in spending each quarter with Bank of America's student card. All other purchases give you 1 percent back. There is a $100 bonus if you spend at least $500 in the first 90 days, plus you get a 10 percent bonus if you redeem the cash back into a Bank of America® checking or savings account.
The card comes with a 3 percent foreign-transaction fee and charges up to $37 for late payments.
Citi ThankYou® Preferred Card for College Students
Citi's student card is part of the ThankYou® Rewards program. You can earn two points for each dollar spent on dining or entertainment, and one point for every dollar spent elsewhere. There's also a sign-up bonus of 2,500 points after you spend $500 within three months of opening the account. You can redeem the points for gift cards, electronics and other great rewards when redeemed at thankyou.com. For gift cards, 100 points often equals $1, although many gift cards start at $25 (2,500 points).
The Citi ThankYou® Preferred Card for College Students charges a 3 percent foreign-transaction fee and up to $35 for late payments.
Wells Fargo Cash Back College Visa® card
Wells Fargo's student card allows you to earn 1 percent back on all your purchases. However, for the first six months, you'll get 3 percent back at grocery stores, drugstores and gas stations. There's a 3 percent foreign-transaction fee and a late-payment fee of up to $37.
How students can effectively handle credit
The rewards that come with these credit cards can be enticing, especially when you have limited income. However, personal finance experts warn against the dangers of overspending and having to pay interest. Katie Gampietro Burke, a CFP®, says rewards often don't outweigh the interest you'll need to pay on rewards credit cards if you maintain a balance.
To avoid paying interest, David Bakke, a contributor to Money Crashers, suggests that students "use their cards for nominal purchases only - ones they know that they can pay off in full and on time so a balance isn't carried."
Paying your bill in full each month can help you build your credit and save you money. If you do carry a balance, try to keep it as low as possible and try to always make at least the minimum payment on time. Late payments and high balances can hurt your credit.
College students who want to build credit, earn rewards or have access to extra funds during an emergency may want to consider a student credit card. With care, a credit card can be a helpful financial asset, but paying interest can more than offset rewards, and improper use can hurt your credit.
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