Student Credit Cards: A Primer
By: Larry Goldberg
Headed to college, and you want to take a great credit card with you? The first step is to understand the types of student cards that may be available to meet your needs. Understanding the market is the best way to make the ideal student credit card selection for you.
Secured Credit Cards: Many student cards these days are secured cards. With a secured student credit card, you are required to put a certain amount of money into a savings account in order to open the actual credit card account. The amount of money varies from the actual credit limit of your card itself to a percentage of that limit. The money must stay in the savings account as long as the credit card account is active, and removal of those funds can cause the company to cancel your card. This is a good protection for the company, though, because should you ever find yourself unable to pay the bill, the company can simply deduct the funds from the account. While it may not seem like the greatest setup in the world, it is a good way to establish your student credit rating and move on to bigger and better cards.
Prepaid Credit Cards: If you’ve ever gotten a gift card to a major retailer, you know how prepaid credit cards work. You or your parents simply deposit an amount into an account. That amount then functions as your credit limit. They are refillable, but once the money is gone from the account, the card cannot be used for further purchases. There are some real benefits to these kinds of cards. First, you can buy whatever you need without the worry of going into debt. Second, should you ever lose your card, you don’t have the same kinds of identity theft concerns as you might with a normal card. The drawback to this kind of card, though, is that not all of them report to credit bureaus, so it may or may not help you establish any kind of credit history. Second, not all merchants accept prepaid cards, as there may not be funds in the account when the merchant tries to get paid
Standard Credit Cards: You’re probably most familiar with this type of card. You apply for the student credit card (either online or through a pen and paper application), and you’ll either be approved or you won’t. Once you’re approved, you’ll be issued a credit limit, and you can begin charging to your heart’s content. You’ll pay a monthly bill, which will be the total of your charges plus an interest fee, and the credit card will routinely report that information to a credit bureau. As the credit card industry has grown, though, so have the number of options within the standard credit card category. Choose from cash back cards, rewards cards, zero percent APR cards, and balance transfer cards, just to name a few. If you do choose to apply for a standard credit card, be sure to do your homework.
Choosing the right student credit card to meet your needs can be tough, but understanding your options is the best first step you can take.
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