Credit Card 101 and the College Student. Good Choices and Best Practices.

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boy and girl college studentWe have all have witnessed the sight of the typical parent dropping their kid off at college. With a ton of pride, tears in their eyes, a little anxiety and a touch of fear, parents leave their kids alone for the first time to blaze their own path socially, academically, and yes…financially.

In many cases, the first step to financial independence begins with the acquisition of a college student’s first credit card. If you’re a college kid, or the parent of one, here are some important things to know and pass along to your student before you apply for one.

Why do banks offer credit cards to students?

Banks are in the business of building profitable relationships with customers. College students are in the critical stages of laying the groundwork for their future, and they need to build their credit. So, banks design credit cards specifically for students. Their hope is to turn these young adults into loyal customers whose relationships with the bank will eventually expand into car loans, mortgages, and other long-term investment products.

What do you need to get a credit card?

Since students generally have no credit history in order to be approved, you need to show that you have independent estimated income. Keep in mind that estimated income can include future income, summer job income, as well as any grant or scholarship income that can be used for living expenses. Even an monthly allowance can be considered as income.

How can a credit card can affect your credit score?

Getting a credit card can be a great way to build your credit history and raise your credit score. Without a credit history, it will be harder for you to get approved for an apartment, car or utilities after you graduate. What could make it ever harder is if your early credit history is full of late payments or large amounts of debt, which will drag down your credit score. Only get a credit card if you know you can afford to pay off the card each month, otherwise you’re bound to have financial difficulties after you graduate.

What kinds of rewards are offered?

 The most popular and best college credit cards offer basic rewards. Some cards offer cash back based on your spending either in certain categories or across the board. Others may offer a 0% intro APR for an extended period of time making paying off a large purchase convenient and less expensive. In addition, there are cards that offer a lower APR if your GPA meets certain criteria. So it always pays to do your homework.

Here are some of the best student credit cards that we’ve reviewed with the benefits and services to each.

Discover it® for Students

Discover It for Students

Why it’s great

  • If you spend according to the 5% bonus categories (that change each quarter) of the Discover it® for Students, you’ll enjoy a rewards rate much higher than the typical 1% or 1.5% back.
  • Discover is one of the few issuers that allow co-signers, which is important if you’re applying for your first card and you’re a student under the age of 21 without a steady income.
  • The Discover it® for Students allows room for error with a 0% introductory APR 6 month period on purchases; then 13.24%-22.24% APR, a waived first late payment fee, and no penalty APR.
  • The Discover it® for Students gives you access to your free FICO score, so you can make sure you’re making the right moves for a healthy credit profile.
  • If your GPA is 3.0 or higher, Discover will give you an extra $20 cash back each school year for up to 5 years.

Why it’s not so great

  • While the card has no foreign transaction fees, Discover isn’t widely accepted overseas, so it isn’t the best card to take with you on summer trips overseas or for a semester studying abroad.
  • If you don’t spend a lot in Discover’s rotating bonus categories, the card’s earning 1% cash back on all other purchases is low.
  • Many cards offer new cardholders cash or points bonuses after reaching a spending milestone, but the Discover it® for Students doesn’t have a signup bonus.

Overall

For young students just starting out with credit, the Discover it® for Students is hard to beat. It allows you to get a co-signer, while also giving you potentially high rewards, few fees and a 0% introductory APR. If you are going to be studying abroad, or need a credit card for overseas travel apply elsewhere.

The Citi ThankYou® Preferred Card for College Students

 

Why it’s greatCiti ThankYOu Preferred Card for College Students

  • Earn 2 points per dollar spent on dining at restaurants and entertainment, 1 point per dollar on everything else.
  • Earn 2,500 bonus ThankYou® Points after spending $500 within the first 3 months of cardmembership.
  • $0 annual fee.
  • Introductory APR of 0% for 7 months on purchases; after that the variable APR will be 14.24% – 24.24%, based on your creditworthiness.
  • ThankYou® Points can be redeemed for certain gift cards, travel and student loan payments at a value of 1 cent each, which is the industry standard.

Why it’s not so great

  • While there are a lot of redemption options for ThankYou® Points, many of them don’t offer the average point value of 1 cent. Cash redemption yields a low 0.5 cents per point.
  • A straight cash back card may be simpler for many people than a rewards system based on points.

Overall

The Citi ThankYou® Preferred Card for College Students is a good card for students who are social and enjoy dining out and going out. ThankYou rewards program isn’t the heartiest, but it does offer some good value.

Journey® Student Rewards from Capital One®

Journey Student Rewards from Capital One

Why it’s great

  • Earn 1% back on every purchase. Rewards bonus on cash back for each month you pay on time.
  • $0 annual fee and no foreign transaction fees.
  • You’ll be rewarded with an increased credit line after making your first five payments on time, plus an on-time-payment bonus that brings your rewards up to 1.25% back on every purchase.
  • It’s got a flat-rate rewards program, meaning no complicated rotating bonus categories to keep track of and activate.
  • The Journey® Student Rewards from Capital One® allows you to choose the due date that works best for you.
  • You don’t have to be a student to qualify, and you may be able to get this card with average credit.

Why it’s not so great

Overall

If you need a student card and have average credit, the Journey® Student Rewards from Capital One® could be a good choice. You’ll be rewarded for your good payment behavior with paying on time with both an increased credit line and lower APR. Even if you’re not a student, you can apply. This makes it nice for non students trying to establish or improve a credit history.

Citi ThankYou® Preferred Card for College Students

Citi ThankYou Preferred Card for College Students

  • Earn 2,500 bonus ThankYou® Points after spending $500 within the first 3 months of cardmembership.
  • 2 ThankYou® Points per dollar spent on purchases for dining at restaurants and entertainment.
  • 1 ThankYou® Point on other purchases.
  • Points do not expire and earn unlimited Thank You Points with this card
  • Redeem ThankYou Points for merchandise, travel rewards, gift cards, cash and more
  • Travel with ease and enjoy global acceptance with Chip Technology
  • No annual fee*

Bonus
2,500 ThankYou Points

Intro APR
0% for 7 months on purchases

Ongoing APR
14.24%-24.24% variable

Annual Fee
none

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