College football fans are filling stadiums. Sororities and fraternities are gathering. And there’s another kind of rush going on – to sign up your child at college for a credit card. With so many offers, including cards with school colors, which is right for their finances?
The best deal is the right deal for the student. Just as important is knowing when to use it – and when not to use it.
Responsible card use helps a college student build a good credit history. That pays benefits when the graduate applies for car financing, a mortgage and other forms of borrowing. The higher the credit score, the better the loan rate and terms.
First, the card should fit the student’s spending habits. What do college students like to do? The list probably includes going out to eat, attending concerts and traveling. Necessities range from groceries and gas to books and school supplies.
Cards designed for frequent flyers, brand-loyal shoppers and wealthy spenders minimally benefit students. A more practical card delivers perks such as purchase protection, credit-building tools, and a rate of 19% or less.
How do you qualify for a college student credit card?
Bankrate says students under age 21 are less likely to be approved on their own than those that age or older. Applicants should expect to be asked for proof of income. That will be simple for those with jobs.
Here are three alternatives:
- A parent or guardian cosigns the card application. While this arrangement has become rarer, it remains a good choice because the adult’s good credit rating can help the student receive a lower interest rate, higher credit limit and other better terms.
- The student secures the card with a deposit. The credit limit is tied to the amount in the card issuer’s savings or similar account. Those funds guarantee that the card balance will be paid should the student default on payments.
- The student becomes an authorized card user. The primary user adds the student to their account, granting them similar privileges and benefits while guaranteeing payment of their charges. This may be the best route, as it helps the student build a credit history faster. But before handing over the plastic, ensure the child understands that the card will be revoked if used irresponsibly.
When should a student not use a credit card?
With a charge card in hand or a smartphone app such as Apple Pay or Google Pay, the student may make it a habit to charge everything from a Starbucks coffee to a Taylor Swift concert. That’s not always a wise decision, experts tell CNBC. Use a debit card:
- To withdraw money from an ATM. A cash advance on a credit card will have a high rate, a transaction fee, and interest charges with no grace period for repayment. A student should have a checking or debit account for those times when cash apps are not practical.
- To avoid merchant fees. A growing number of retailers are adding a sizeable fee when a credit card is used for payment. The fee is waived for a debit card payment.
- To manage spending. The buy-now, pay-later mentality can lead to excessive credit card use. When the money comes straight out of a student’s checking account, it is immediately felt.
- To earn benefits. Tropical Financial offers the Daily Rewards Debit It pays 2 cents on every retail purchase. The checking account has no minimum balance requirement, no monthly service fee and no ATM fees. It comes with free bill pay, free e-statements, and a mobile app, a popular feature with younger people.
