What Are The Best Credit Cards for College Students?

Are you a college student looking to build your credit history? Are you interested in getting a credit card but unsure where to start? Understanding credit cards can be daunting, but fear not - this blog has got you covered! From demystifying APRs to outlining the benefits and risks of using credit cards, we break down everything you need to know about credit cards as a college student.

Credit cards are a popular financial tool that many people use on a daily basis. For college students, having a credit card can be both beneficial and detrimental, depending on how it is used. In this blog, we will discuss:

• What a credit card is
• The different types of credit cards
• The benefits and risks of using credit cards

Read on to learn how to choose the right credit card for you, how to use it responsibly, and how to build a strong credit score.

What is a Credit Card?

A credit card is a payment card that allows the cardholder to borrow funds from a financial institution to make purchases. The cardholder is required to repay the borrowed amount along with interest, fees, and other charges. Credit cards are typically used for purchases of goods and services, online transactions, and for withdrawing cash from ATMs.

How do Credit Cards Work?

Credit cards allow cardholders to make purchases using a line of credit provided by a financial institution. When a cardholder makes a purchase, the credit card issuer pays the merchant on behalf of the cardholder, and the cardholder becomes responsible for repaying the issuer for the amount of the purchase, plus any interest, fees, and other charges that may apply.

Credit cards come with a credit limit, which is the maximum amount of money that a cardholder can borrow at any given time. This credit limit is determined by the credit card issuer based on the cardholder's creditworthiness, income, and other factors.

Cardholders are required to make payments on their credit card balance each month. If the balance is not paid in full, interest charges will be added to the balance. The interest rate on credit cards can vary depending on the card issuer and the type of card, but it is typically higher than other types of loans or lines of credit.

Credit cards can also come with fees, such as annual fees, balance transfer fees, cash advance fees, and late payment fees. These fees can add up quickly and should be considered when deciding whether to apply for a credit card.

To use a credit card, a cardholder must provide the card information to the merchant at the time of purchase. The merchant will then process the transaction through a payment network, such as Visa or Mastercard, and the credit card issuer will be responsible for paying the merchant.

In summary, credit cards work by allowing cardholders to make purchases using a line of credit provided by the card issuer. The cardholder is responsible for repaying the issuer for the amount of the purchase, plus any interest, fees, and other charges that may apply. Understanding how credit cards work can help college students make informed decisions about whether to apply for a credit card and how to use it responsibly.

Why do you need to have a credit card? What are the benefits of using a credit card?

You must be thinking, “It’s great to know how credit cards work, but how do they benefit me?”

As a college student, credit card can bring you the following benefits:

1. Building credit history

   Building credit history is important as it can affect your ability to obtain loans and other forms of credit in the future. If you are responsible with your credit card use, it can help you establish a good credit score, which can be beneficial for future loans, mortgages, and even job applications.

2. Earning attractive rewards

   Credit cards can offer several benefits, such as cashback rewards, travel perks, and fraud protection. Many credit card issuers offer rewards programs that allow you to earn cashback, points, or miles for every dollar you spend, which you can redeem for various rewards such as statement credits, gift cards, or travel rewards. Some credit cards also offer travel perks such as free checked bags, priority boarding, or airport lounge access.

   According to the Credit Crd Rewards Report by CompareCards, we can see people are increasingly aware and utilising credit card rewards. This is evidently shown on the graph below.

   Percentage of credit cardholders participating in rewards programs

   50%

   55%

   60%

   65%

   70%

   75%

   80%

   Year

   Percentage of credit cardholders participating in rewards programs

3. Managing your cash flows and expenses

   Credit card statements provide a detailed record of all purchases, making it easier to track expenses and identify areas where you can cut back. Besides, credit cards can be used to pay bills and make purchases before payday, providing a short-term cash flow solution.

4. Providing fraud protection

   Credit cards also offer fraud protection, which means that you are not liable for fraudulent charges made on your credit card. If your card is lost or stolen, you can report it to your issuer and they will cancel your card and issue a new one. In contrast, if you use a debit card and someone gains access to your account, they could potentially drain your entire bank account.

What are the risks of using a credit card?

While credit cards offer several benefits, there are also risks associated with using them. Here are some of them to be aware of:

1. Credit card can lead to crippling debts.

   The biggest risk is overspending and accumulating debt. It can be easy to get carried away with your credit card spending and lose track of how much you have spent. If you don't pay off your balance in full each month, you will be charged interest on the remaining balance, which can add up quickly.

2. Credit card can severely damage your credit score if you miss payments.

   Another risk is damaging your credit score if you miss payments or carry a high balance. Late payments can result in fees and can negatively impact your credit score. Carrying a high balance can also hurt your credit score as it can increase your credit utilization ratio, which is the percentage of your available credit that you are using.

3. Credit cards may have high fees.

   While credit cards can be a helpful tool for managing expenses and cash flow, it's important to be aware of the associated fees that can quickly add up. These may include annual fees, balance transfer fees, cash advance fees, and other charges. Failing to pay attention to these fees can result in wasted money and unnecessary expenses. Therefore, it's crucial to read the fine print carefully, compare credit card offers, and choose a card with low or no fees whenever possible. By doing so, you can effectively manage your expenses and cash flow while minimizing costs and maximizing benefits.

In conclusion, credit cards can be a useful tool for college students if used responsibly. They offer benefits such as cashback rewards, travel perks, and fraud protection, but also come with risks such as overspending and damaging your credit score. It's important to use your credit card wisely and pay off your balance in full each month to avoid accumulating debt and negative consequences on your credit score.

What are the different types of credit cards?

So, what kinds of credit cards are out there? There are several types of credit cards available in the market. Some of the most common types of credit cards include:

1. Rewards credit cards

   These credit cards offer rewards for making purchases using the card. This could include cashback, reward points, or other incentives. Some rewards credit cards have specific categories where you can earn higher rewards, such as gas or groceries. If you are responsible with your credit card usage and pay off your balance in full every month, these cards can be a great way to earn extra cash or rewards.

2. Travel credit cards

   If you are a frequent traveler, a travel credit card can be a great option. These cards offer rewards, discounts, and perks for travel-related expenses such as flights, hotels, and car rentals. Some travel credit cards even offer travel insurance, which can come in handy if your trip is cancelled or delayed. However, keep in mind that these cards may come with higher annual fees, so make sure you will use the benefits enough to justify the cost.

3. Secured credit cards

   If you have poor or no credit history, a secured credit card can help you build credit. These cards require a security deposit to be paid upfront, which acts as collateral in case you default on your payments. While the credit limit may be lower than other types of credit cards, responsible usage can help you establish a positive credit history and eventually qualify for other types of credit cards.

4. Balance transfer credit cards

   If you have high-interest debt on multiple credit cards, a balance transfer credit card can help you consolidate your debt and save money on interest payments. These cards offer a promotional period of lower or 0% interest for a certain amount of time, allowing you to pay off your debt faster. Keep in mind that balance transfer fees may apply, so make sure to compare the costs before making a decision.

5. Student Credit Cards

   These credit cards are designed specifically for college students and offer lower credit limits, fewer fees, and other perks such as cashback rewards for purchases related to education. These cards can be a good option for students who are new to credit and want to build a positive credit history. However, be sure to use the card responsibly and avoid carrying a balance to avoid paying high interest charges.

What is the best credit card for college students?

The question now is: How to choose the right credit card? College can be a great time to start building your credit history, but choosing the right credit card can be overwhelming. With so many options available, it can be challenging to determine which card is best for your needs. Here are some of the best credit cards for college students:

1. Discover it Student Cash Back: The Discover it Student Cash Back card is a great option for students who want to earn rewards on their spending. It offers 5% cash back on rotating categories that change every quarter, such as grocery stores, gas stations, and restaurants, and 1% cash back on all other purchases. There is no annual fee, and Discover matches all the cash back you earn at the end of your first year as a cardholder.
2. Capital One Journey Student: The Capital One Journey Student card is designed for students who want to build credit and earn rewards. It offers 1% cash back on all purchases, and an additional 0.25% cash back when you pay your bill on time. The card also has no annual fee and comes with access to Capital One's CreditWise tool to monitor your credit score.
3. Citi Rewards+ Student Card: The Citi Rewards+ Student Card offers a unique rewards program that rounds up the points you earn on purchases to the nearest 10 points. It also offers 2x points on purchases at supermarkets and gas stations, up to $6,000 per year, and 1x points on all other purchases. There is no annual fee, and new cardholders can earn a bonus of 2,500 points after spending $500 in the first three months of account opening.
4. Bank of America Cash Rewards for Students: The Bank of America Cash Rewards for Students card offers 3% cash back on a category of your choice, such as gas, online shopping, dining, travel, drug stores, or home improvement/furnishings. You also get 2% cash back on grocery store and wholesale club purchases and 1% cash back on all other purchases. The card has no annual fee and offers a $200 cash rewards bonus after spending $1,000 in the first 90 days of account opening.
5. State Farm Student Visa Credit Card: The State Farm Student Visa Credit Card is a good option for students who want to earn rewards and support a good cause. It offers 1 reward point for every $2 spent on eligible purchases, and the rewards can be redeemed for merchandise, travel, or statement credits. State Farm donates $25 to the State Farm Good Neighbor Scholarship for every new account opened, and there is no annual fee for the card.

Choosing the right credit card as a college student can help you build your credit history and earn rewards on your spending. Consider your spending habits and goals to determine which card is best for you.

Don’t worry if you are not a college student in the U.S. and this section seems irrelevant to you. Focus on the following attributes, and you should be able to find the best credit card for yourself in no time:

• Look for credit card with no annual fees
• Choose the credit card with low interest rates
• If possible, opt for credit cards that reward cash back for everyday spending

With responsible use, a credit card can be a valuable tool for managing your finances and achieving your financial goals.

How to Get a Credit Card? How to apply for a credit card?

Credit cards can be a valuable financial tool for college students, providing a convenient way to earn attractive rewards and build credit history. However, despite the potential benefits, the 2021 Federal Reserve Survey of Consumer Finances has shown that college students are still underserved in this segment. According to the survey, credit card ownership rates among ages 18-24 were only 46%, while other age groups such as ages 55-64 and 65 and older had rates of 77% and 70%, respectively. This highlights the need for better education and access to credit cards for college students, as they are a crucial demographic for financial institutions to serve.

Hence, if you're a college student and looking to get a credit card, we have provided you with the following steps you can follow:

1. Check your credit score

   Before applying for a credit card, it's important to check your credit score. Your credit score is a measure of your creditworthiness and shows how responsible you are with credit. You can check your credit score for free at websites like Credit Karma, Credit Sesame, or through your bank or credit card issuer.

2. Research different credit cards

   There are many different credit cards available, each with different features and benefits. Research different credit cards to find one that fits your needs and spending habits. Look for a credit card that offers rewards or cashback on purchases you frequently make.

3. Apply for a credit card

   Once you have chosen a credit card that suits your needs, you can apply for it online, over the phone, or in-person. The application process will require you to provide personal information, such as your name, address, and Social Security number, as well as your income and employment details.

4. Wait for approval

   After you apply for a credit card, you'll have to wait for approval. If your credit score is good, you'll likely be approved quickly. However, if your credit score is low or you have no credit history, you may be denied or have to provide additional information.

5. Activate your credit card

   Once you're approved for a credit card, you'll receive it in the mail. You'll need to activate the card by following the instructions provided with it. Make sure to sign the back of the card and keep it in a safe place.

It's important to use your credit card responsibly by paying your bills on time, staying within your credit limit, and avoiding carrying a balance. Doing so will help you build good credit and avoid costly fees and interest charges. Hence, in the next section, we will share with you a few tips on the best ways to use credit cards as a college student.

How to Use Credit Cards Responsibly

Just as Jean Chatzky once said, “Credit cards are like power tools. Used correctly, they can be incredibly useful. But if you're not careful, they can be dangerous and cause a lot of damage.”

Despite the many benefits that credit cards can offer college students, reports from Experian and Creditcards.com have revealed concerning trends in credit card usage among this demographic. According to Experian's State of Credit Report, average credit card balances for college students have been on the rise in recent years, with balances increasing from $1,183 in 2019 to $1,579 in 2021.

Additionally, Creditcards.com reports that average credit card interest rates have also been increasing, with the rate reaching 16.26% in 2021. These trends are worrying because unwise credit card spending can lead to significant debt problems for college students, potentially derailing their financial future.

Here we have provided you with 9 tips to help you avoid falling into debt and use credit cards responsibly:

1. Set a budget: Create a budget and stick to it. Only use the credit card for purchases that are within the budget.
2. Make payments on time: Late payments can negatively impact credit scores and lead to additional fees and charges.
3. Pay the balance in full: Always pay the balance in full to avoid interest charges.
4. Monitor the credit card activity: Monitor the credit card activity regularly to detect any fraudulent transactions or errors.
5. Avoid cash advances: Cash advances can come with high fees and interest rates, so it is best to avoid using them.
6. Set up direct debit: Setting up automatic payments for credit card bills can help ensure that payments are made on time and avoid late fees and interest charges. It also helps to avoid missed payments, which can negatively impact credit scores.
7. Understand the terms and conditions: Before applying for a credit card, make sure you understand the terms and conditions, including the interest rate, fees, and rewards program. This can help you avoid surprises down the line.
8. Avoid opening too many credit cards: While having multiple credit cards can be useful, it's important not to open too many at once. Each application can result in a hard inquiry on your credit report, which can temporarily lower your credit score.
9. Keep credit utilization low: Your credit utilization ratio is the amount of credit you're using compared to the total amount of credit available to you. Keeping this ratio low can help maintain a positive credit score.

Credit cards can be a useful financial tool for college students, but they should be used responsibly. Understanding the different types of credit cards, the pros and cons of using them, and how to use them responsibly can help college students make informed decisions when it comes to managing their finances.

Conclusion

In today's fast-paced world, college students face a myriad of challenges when it comes to managing their finances. But with the right knowledge and tools, they can overcome these obstacles and set themselves up for a lifetime of financial success. Credit cards, when used responsibly, can be one such tool that can help students navigate the complex world of personal finance.

By understanding the different types of credit cards available, and weighing the pros and cons of using them, students can make informed decisions about how to manage their money. From earning rewards to building credit, credit cards can provide a range of benefits for college students.

Of course, with great power comes great responsibility. It's important for students to be mindful of their spending habits and to use credit cards in a way that supports their financial goals. By following the tips outlined in this article, college students can develop responsible credit card habits that will serve them well in the long run.

So if you're a college student looking to take control of your finances, consider adding a credit card to your toolkit. As Dave Ramsey once said, “The key to using credit cards wisely is to make them work for you, not against you. Take advantage of rewards programs and other perks, but don't let them tempt you into overspending or carrying a balance.” With the right knowledge and a responsible approach, you can build a positive credit history and set yourself up for a bright financial future.

FAQs

Can college students apply for a credit card?

Yes, college students who are at least 18 years old can apply for a credit card. However, they may need to have a source of income or a co-signer to qualify.

What's the best type of credit card for college students?

The best type of credit card for college students depends on their needs and spending habits. A student credit card, a cashback credit card, or a travel rewards credit card are all good options to consider.

What should I do if I can't make a credit card payment?

If you're unable to make a credit card payment, contact your card issuer as soon as possible to discuss your options. They may be able to offer you a payment plan or other assistance.

How many credit cards should I have?

It's generally recommended to have no more than two or three credit cards to avoid overspending and to keep track of your expenses.

What are some common credit card fees?

Common credit card fees include annual fees, late fees, over-limit fees, and balance transfer fees. It's important to read the terms and conditions of a credit card to understand the fees associated with it.

What should I do if my credit card is lost or stolen?

If your credit card is lost or stolen, contact your card issuer as soon as possible to report it. They can cancel the card and issue a new one to prevent fraudulent charges.

What is APR on credit card?

APR on a credit card stands for annual percentage rate. It is the interest rate that credit card companies charge on any unpaid balance on the card. The APR is expressed as a percentage and is applied annually.

How many credit cards should I have?

There is no specific number of credit cards that is right for everyone, as it depends on your finances and spending habits. Generally, 1-2 cards are enough, but more can be beneficial if managed responsibly.

What is a secured credit card?

A secured credit card requires a security deposit, usually equal to the credit limit, and is commonly used by people new to credit, with a low credit score, or looking to rebuild their credit history.

What is a balance transfer credit card?

A balance transfer credit card allows you to transfer an existing credit card balance to a new card with a lower interest rate, usually offering a promotional period of lower or 0% interest to consolidate high-interest debt from multiple credit cards.