Weighing the Pros and Cons: Are Student Credit Cards a Good Choice?

Weighing the Pros and Cons: Are Student Credit Cards a Good Choice?

Student credit cards are a great option for those currently enrolled in school that are looking for spending flexibility and also potentially earn rewards. However, as a student, you’re not restricted to only having student credit cards while you’re in school. When I was enrolled in school, I never had a student credit card as I had other consumer credit cards that better suited my needs.

But if you’re just starting your credit building journey, here’s what you need to know about student credit cards.

1. Student credit cards are a solid first step in building credit

When you put student credit cards up against standard credit cards, they match up well. Student cards typically earn cash back or travel rewards on your purchases, and have a low or no annual fee — similar to what other consumer cards have.

However, student cards fall short of premium credit cards like the Chase Sapphire Preferred or American Express Gold Card. These cards are for consumers with good to excellent credit scores and higher income brackets. They come with a list of travel and spending benefits, as well as consumer protections like travel insurance and purchase protection. And most importantly, the rewards earned when spending on those cards are considered some of the most valuable rewards for consumers.

So why does this matter to someone looking at a student credit card? A student card is a step in your financial journey, not the destination. And the foundation of your credit history and habits starts with a straightforward product.

But as you move forward in school, you will prepare for graduation and move into your career field. But how does that work for student credit cards? Each issuer has different policies, but generally, you can keep your student card for some time after graduation.

So when should you look to graduate from your student credit card? If you’re looking to maximize your rewards earning potential, aim to move on as soon as possible. But if you’re content with the value your card is giving you, hang on to it.

Student credit cards can give you moderate value on your purchases, but more importantly, help you add to your credit history.

2. Student credit cards can be dangerous territory for some

Credit cards were surging in popularity in the 1980’s, but they were wildly unregulated. Issuers were arriving on college campuses doing their best to get more cards in students' hands with quirky sign-up bonuses like t-shirts and beach balls. These aggressive marketing tactics combined with less-than-informed college students made for a disaster, with many ending up deep in debt.

And despite regulations on issuers and learning lessons of the past, young consumers are still finding their way into credit card debt they are unable to pay back.

So how can college students trying to build credit safely do so? Spending wisely and cautiously. For example, use your student credit card to pay for recurring expenses like maybe your electricity, Netflix or cell phone bill. You can even schedule auto payment so you don’t have to worry about missing a due date.

The key to successfully using a student credit card, or any credit card for that matter, is to spend within your budget and means. If you don’t, you could get caught up in spiraling credit card debt that can negatively impact your credit score.

3. Student credit cards are widely available, but choose carefully

If you search for the term student credit card, you will see a swath of banks and issuers clambering for your attention. However, just like there are an infinite amount of coffee shops, no two cups of coffee (or student credit cards) are created equally.

If you decide that a student credit card is the best way to start your credit building journey, here’s how you should be comparing cards to find the best one for you:

• Sign up bonus: Many credit cards come with a lucrative bonus to entice new cardholders to apply. And yes, even student credit cards have them. So as you’re comparing cards, be sure to take those into account for the total value the card can deliver you.
• Rewards: Most student credit cards will come with some type of rewards as you spend on the card. It’s likely either cash back or travel rewards, and it can be helpful for you to have money flowing back in your pocket or have additional miles for your next flight.
• Annual fee: The majority of student credit cards don’t have annual fees, but some do. Generally, it's not necessary to pay an annual fee to have a student credit card — so do your best to stay away from any additional fees.

Final thoughts on student credit cards

Student credit cards are a great way to dip your toes into the land of credit cards. While your studies are important, it’s also forward-thinking to know that graduation will come faster than you think. And when you enter post-graduate life, making significant financial decisions such as purchasing a new car, renting or purchasing a home can heavily rely on your credit history.

So as you’re studying, be conscious about building your credit history so you can enter the workforce with the financial resources you need to make important decisions for yourself.