Why Student Credit Cards Offer Life-Long Value
The price of college tuition -- along with the cost of student life in college communities -- continue their relentless climb upward. Average tuition and fees for the 2013–2014 school year was $30,094 at private colleges, $8,893 for state residents at public colleges, and $22,203 for out-of-state residents attending public institutions, according to the College Board.
But tuition is only about 50-70 percent of the cost of sending your child to college. Beyond tuition are the high costs of room and board, as well as transportation costs. Then there are expensive textbooks and school supplies. The Board says the average student will spend $1,168 a year -- not counting the costs of technology like laptops, tablets and special software.
Benefits of a student credit card
To help handle some of these expenses, you and your college-age kids should consider student credit cards. Keeping in mind the important proviso that today's student needs to be vigilant about the debt load they take on, there are many good reasons to get a student credit card.
Many student credit cards offer rewards for purchases through points or cash back. These, in turn, can be used toward buying items students need such as text books, school supplies or plane tickets to travel home.
Security comes with not carrying cash and a student's checkbook can easily be lost or stolen. With a credit card, the lost or stolen plastic can be reported to the company and the card suspended.
Emergencies always happen and having a credit card for those situations can be vital. It is important for students to learn to distinguish a true emergency so as to not live beyond their means.
A student can learn even more responsibility from a credit card by monitoring and controlling all their spending and paying bills on time each month.
Student credit cards also give young adults a way to build credit history. When a student graduates from college, having established credit will help him buy a car and rent or own a home.
But college kids need to be smart about their credit histories and the amount of debt they are able to handle and pay off. Many students find themselves with excessive credit card debt upon graduating from college.
It can be instructive to equate a student's credit score with their GPA. If you have really poor grades freshman year, it's going to be a real uphill battle to have a good GPA by senior year. Your credit score is kind of the same way -- if you make a mistake that results in a low credit score, the negative information stays on your credit report for seven years.
Deciding on a credit card
The CARD act enacted in 2009 was intended to protect younger people from being taken advantage of by credit card companies. Now, any one under the age of 21 cannot apply for credit cards unless they have a proven source of money, like a part-time job, or a co-signer on the account, oftentimes a parent. So, while the law benefits young consumers, it also makes it more difficult for young people to establish a line of credit.
Students who already have a checking or savings account with a bank should start their search there, as many banks extend special rates and offers to existing customers. When picking a credit card, experts suggests students look at the annual percentage rate (APR), or the amount they will pay in interest charges per year.
Many credit card companies offer zero percent or a low APR for the first six to nine months, after which the rate increases. It's important students are aware of and take into account how much their rate will rise. The experts also advise students to check and see if the card has an annual fee and any other penalty fees. Many credit card companies add on more fees if a payment is more than 60 days late. Some companies raise late users penalty rates as high as 29.9 percent.
Once a card has been picked, it's time for you to sit down with your student to go over all of the fine print, which can be difficult even for a seasoned credit-user to understand. No matter the type of card, one rule remains the same: Students should strive to pay the balance off in full, on time, every month.
If your student isn't eligible for a credit card -- or for favorable terms on a card -- another possibility is applying for a secured card. A secured card requires a cash deposit that then becomes the credit line for the account. For example, if a student puts in $200 in the account, they can then charge up to $500.
When shopping for a secured card, be sure to find one that doesn't charge an application fee or exorbitant annual fee. Students should also make sure their secured card issuer reports their payment history to the credit bureaus to start establishing a line of credit.
Building a solid credit history
Credit card mistakes can be very expensive. Even one or two late payments can trigger a higher interest rate or cause students to lose points on their credit scores. In addition to making it more difficult to obtain new credit, a weak credit score can also hurt a student's employment chances. Many employers, particularly in financial services, check a job candidate's credit history to see if they are responsible with money and credit.
A good credit history can be a priceless asset to a student later on in life. A positive line of credit can help a student's eligibility for better terms or interest rates when the time comes to rent an apartment, or buy a house or a car. Also, don't forget the better rates on insurance to protect all of those investments.
Good credit also allows you to avoid annoyances like paying deposits for utilities, cell phone service and any number of other services.