Beginning Credit With a Student Credit Card

Some college students are in a situation where their parents are paying for their bills, so they may not see much need for a credit card. Others are more independent, and may need an extra source of funds when they run short on cash. In either case it is important for a young person to find some way to acquire credit. And the reasoning for doing so is more than just money… it’s for establishing an overall credit history. With a good credit history, a young person will be in a better position to rent an apartment or maybe even buy a house once they graduate and get the type of job that they really want. The importance of a solid long-term credit history in our financial driven society cannot be stressed strongly enough. There’s only one problem. Most credit card companies don’t like issuing credit cards out to individuals that don’t have a credit history. This is because without a credit history, they have no way of ascertaining whether or not a person will be able to pay their debt back. Students can try to circumvent these problems by having a parent or another person with established credit co-sign for them, but for those desiring a more independent situation, such a solution may seem hampering. A better solution involves a young person signing up for a student credit card designed for the inherent limitations found on a young persons credit profile. What is a student credit card? A student credit card is one designed to help get high school or college students on track for financial stability. Many may require a co-signer, but there are those that don’t, provided that the person applying is at least 18. The credit limits tend to be lower, (usually hovering between $500 and $1,000). The interest rate, (the percentage of payment that is nothing but profit for a credit card company), will also be much higher. So, a student credit card is not the best alternative, but if a person has no credit history, it might be the only way they can have access to a ‘normal’ credit card. The terms of a student credit card may vary from very desirable to fairly burdensome. In the cases where there are significant restrictions on the terms, it is sensible to utilize these cards with the maximum benefit within these restrictions. That is, use the card to establish a history but don’t maintain any measurable balance from billing cycle to billing cycle. This way the credit history is getting established with little costs. As time goes by, the student can apply for better terms or call the existing card issuer and request better terms. In most cases, after the card is used responsibly, the credit card company will improve the terms without any impetus. The keyword, of course, regarding the access to these types of cards is ‘normal.’ Another type of credit card a person can get if they do not have a credit history is a prepaid debit card. These help build a person’s credit but are definitely not as good as a student credit card. Why? It’s because they require a deposit to use. And the credit line on these cards is determined strictly by the deposit put forth. Granted student credit cards might offer lower limits, but at least they offer something. However, it may not hurt to invest in a prepaid debit card anyway, even if it doesn’t provide as many financial advantages as the student credit card. Regardless, a person must make sure they show financial responsibility with both. With prepaid debit cards any fees associated with the card must be paid, as unpaid fees do get reported to the credit reporting bureaus. And, as one might expect, all of the monthly bills associated with a student credit card, (along with any extraneous fees), must also be paid as well. If a person does mess up on their payments, there is an option of trying to work things out with the creditor before it’s too late. Sometimes they will defer payments and/or accept partial payments until a person’s financial situation gets better. Neither will cause a bad report to credit bureaus, since a person did try to do something to address the problem. When a person does nothing to address debt, they put themselves at risk for a bad credit score. Some credit card companies may even try to legally reclaim their debt through a lawsuit. Should this happen a person must go to court, as the financial picture will worsen drastically if they don’t. Once in court a judge can place a judgment against a person, legally requiring them to pay the debt. If the debt still isn’t paid, creditors can go after any assets the person has and/or garnish their wages. So, it definitely pays to work things out with creditors before things get ugly. No matter how bad a debt situation may be, ignoring it will only make it more painful for your credit profile and psychologically debilitating. Credit is a privilege that has tremendous value. Developing good credit and good credit habits at a young age only enhances this value. Many consumers are leery of credit card offers to students when in fact used properly can be a incalculable benefit.