If you’re a student, then the chances are the last thing you’re thinking about is building your credit. Parties, traveling, and good grades are most likely to be your top priorities in life. However, the earlier you get started on building your credit score, the more prosperous you will be in life after you graduate.
Our credit score determines many factors of our finances and our lives. Putting off building your credit score until after you graduate, will set you back a few years, leaving you behind your peers that had the foresight to start building their credit in their student years.
Getting a credit card while you’re attending college is the easiest way to start building your credit score. However, not all credit card facilities are equal, and some lenders will offer you a better deal than others.
In this article, we’ll discuss everything you need to know about successfully applying for a credit card facility while you get through your studies.
The Best Credit Cards for Students
Petal Cashback Credit Card
Petal designed this card for people who are looking to build their credit score quickly. The company does not market the card directly to students. However, it’s suitable for anyone with no credit history looking to build their FICO and VantageScore credit profiles.
After proving that you can repay your outstanding balance, Petal will offer you 1.5-percent cash back on all of your purchases with the card. The facility also has no account fees, and no foreign transaction fees, making it the ideal choice for students that travel.
Petal has a unique underwriting policy that allows the company to provide credit cards to people with no credit history. This feature makes the Petal card the ideal choice for students. The credit limit on the card varies between $500 to $10,000. Your facility size depends on your credit history and income.
The cashback feature of the credit card facility is where Petal shines. They offer new cardholders 1-percent back on all purchases.
Cardholders can earn additional cash back after making 6 on-time payments (when the cash back increases to 1.25%) and again after six additional on-time payments (when the cash back increases to 1.5% cash back).
The cashback feature of the credit card facility is where Petal shines.
- They offer new cardholders 1-percent back on all purchases.
- The cashback rebate doesn’t expire, and customers have access to the rewards as long as they maintain their account.
Citi Rewards+ Student Credit Card
This credit card facility is ideal for students that spend on groceries and gas. Citi offers a rewards points system for cardholders, with a 10-percent bonus on the first 100,000-points you redeem each year.
With this credit card, you get double points for purchasing gas and groceries at participating retailers. Citi also rounds up any points, so if you swipe for a purchase of $56, it gives you points for a $60 purchase. If you spend more than $500 with participating retailers in the first three months, you’ll receive 2,500-bonus points. That’s enough points to qualify for a $25 gift card.
Journey Student Rewards Credit Card from Capital One
If you have decent credit, then this card is an excellent choice for students. The most significant benefit of this student credit card is its cashback rewards program. You earn 1-percent cashback on all of your purchases, and you receive a 0.25-percent cash bonus when you settle your credit card bill on time.
Redeem your rewards as a statement credit or through a check at any stage. The Journey Card provides users with an automatic credit line increase after 5-months of paying your bills on time. You also get the same perks as the Capital One CreditWise facility, allowing you to increase your financial literacy.
With the Journey card, you can set your cashback bonuses to deposit directly into your account when it reaches $50, $100, or $200. You can also choose to release your rewards on a specific date as well.
Citi Secured Credit Card
The Citi Secured Credit Card facility offers students reasonable APR and low fees. The card features a high credit limit, and it’s a good choice for students with poor or bad credit.
Secured credit cards are similar to a debit card facility. Banks will open an account for you, and ask you to secure the credit line with cash. You deposit into a separate account that covers the credit limit on the card, eliminating the bank’s risk in the deal.
If you default on your credit card payments, the bank deducts the outstanding amount from the deposit and returns the rest to your account. However, if you default, they report you to the credit bureaus, and the chances of you securing another facility are slim.
However, if you do maintain your monthly payments, then you can expect to build your credit score quickly with this card. Citi report to all three credit bureaus and this dramatically increases your credit score across both the VantageScore and FICO systems.
The card has no rewards program, but the credit reporting benefits are well worth taking on this facility if you are looking to build your credit fast.
Capital One Secured Credit Card
Another secured credit card facility that’s worthy of menti9on in this review is the product on offer from Capital One. This secured card offer students credit-building benefits provided that they use the card responsibly.
Before you receive the card, you’ll need to deposit $9, $99, or $200 into the account to guarantee your facility. After receiving payment, the bank issues you with a secured card, with a limit reflecting your current credit standing.
There are no annual fees with this facility, and you can raise your credit limit by making an additional deposit to secure the credit line. It’s important to note that your deposit remains untouched in a segregated account. As a result, you’ll have to pay your statement every month, without using the deposit.
Cardholders that demonstrate good payment behavior may receive an automatic extension of their credit facility after six to 12-months. Unfortunately, the APR on this card is high, and you’ll pay more in interest than with the other cards mentioned on this list. However, if you pay your bill in full every month, you won’t have to worry about interest payments.
State Farm Student Credit Card
The insurer “State Farm,” released a credit card facility called “Student Visa.” Using this card helps you to reduce the premiums on your auto and home insurance.
The card gives you 3-points for every dollar you spend on insurance premiums, with up to an annual total of $4,000 in redemptions. Cardholders also get 1-point for every $2 they spend on other purchases. Redeem your points for merchandise, gift cards, State Farm products, and travel.
Wells Fargo College Credit Card
Wells Fargo Cash Back College Card is a student-friendly option that has one of the best rewards programs of the cards mentioned on this list. In the first 6-months after opening your account, you’ll receive 3-percent cash back on groceries, gas, and drugstore purchases. You also get 1-percent back on any other eligible purchases you make with your card.
After the introductory offer ends, you’ll still get 1-percent back on your spending. This card also offers a 12-month initial APR period of 0-percent. This offer means that all of your purchases in the first year have no interest charges. After the introductory periods expires, you’ll still benefit from a reasonable APR that’s affordable.
You can redeem your cashback rewards by requesting a credit to your statement, a direct deposit to your bank account, or through a paper check. All your cash redemptions must be in $25 increments.
Our Pick – The Petal Card
We think that the Petal card offers students with the best credit card facility. The reporting on your payment history helps to improve your credit score rapidly. With a decent APR and 1-percent cash back rewards, this card will save you money on your expenses.
While it lacks an introductory APR rate, you’ll probably be paying your card in full each month. This strategy means you don’t need to concern yourself with the APR of the facility as a motivating factor.
Why Your Credit Score Matters
If you leave building your credit score until after graduation, you’re starting life behind the eight-ball. Students that have the foresight to build their credit in college have an edge. They graduate with not only a diploma or degree but a foothold into the credit market as well. So, why start to build your credit score in college? What are the benefits? What are the drawbacks of waiting?
Let’s start with the advantages of building your credit score in college. After graduation, the chances are that you’ll want to apply for an auto loan to get a car to commute to your internship or a new job. After all, the purpose of college is to make your gainfully employable, providing a prospective employer with an educated employee.
Many students will move to a city, because that’s where the jobs are, and they’ll need to find an apartment to rent. You’ll also need some home insurance to safeguard your property at home in case of a burglary, and auto insurance to cover you in case of a vehicle accident.
All of these lifestyle necessities require a credit score. If you have never had any credit facilities up until this point, then you’re going to find it challenging to complete any of the tasks above.
Landlords want to see that you have good credit to limit the risk in renting to a new tenant. Insurance companies rely on credit scores to calculate your monthly premiums, and car dealers use the score to estimate your interest APR on a lease or financing deal.
If you enter the credit market with a subprime score, lenders, landlords, and insurance companies will turn up their noses at you. If you do manage to secure any of these facilities, then the chances are they are going to come with highly unfavorable terms and rates.
Credit Scores Explained
So what is your credit score exactly? There are three credit bureaus in the U.S; Equifax, Experian, and TransUnion. These three bureaus collect data from credit agencies, such as banks and lenders at the end of the month. This data provides them with an overview of your current financial position and the use of credit facilities.
The bureaus look at five weighted factors when calculating your score, based on the data provided by credit agencies.
- The age of your credit – How long you have held any credit facilities.
- The mix of your credit – Includes home loans, car loans, credit cards, and store accounts.
- Your payments history – This is the most important factor; do you pay your accounts on time?
- New credit applications – Hard enquires into your credit report by lenders.
- Utilization ratios – How much of your credit facility do you use?
The bureaus use this information to issue you a FICO credit score. Your score ranges from 300 to 850, depending on the factors mentioned above. If you have a credit score in the 800s, you are in the best financial position, and lenders will have no problem issuing you any form of credit facility you want.
If your score is between 691 and 799, lenders consider your score good, and they’ll be a little more skeptical about loaning you money, but for the most part, you should be able to get any facility you like, but at a slightly higher APR than someone with an 800+ score.
If you have a score between 581 and 690, you are an average credit risk, and you’ll find that most lenders will charge you unfavorable rates on any credit facility. Those individuals with scores below the 580-mark are in the subprime territory, and you’ll struggle to get approval for any credit facility.
How Does a Student Credit Card Facility Benefit Your Credit Score?
Applying for a credit card while you’re a student is an excellent idea if you want to build your credit score. The most critical parts of your credit score are your payments history and your utilization ratio. The payments history is self-explanatory – it’s how you manage your credit, and if you pay your creditors on time at the end of every month. Missing a single payment can dramatically affect your credit score.
The utilization ratio describes how much of the facility you use. For example, if you have a credit card with a $3,000 limit, lenders and the bureaus don’t like to see you use more than 30-percent of the facility. Therefore, you would want to keep your spending on the card to under $1,000 per month.
By taking a credit card facility as a student, you get a head start on building your credit score, instead of waiting till you enter the job market. As a result of your foresight, you’ll have a good credit score upon your graduation, and more opportunity as you start your career.
FICO Vs. VantageScore 3.0
The most generally accepted credit score across all lenders is the FICO score. However, this scoring system takes into account the age of your credit, as well as your credit mix. Students getting their feet wet in the credit market don’t have much in the way of credit history on any facility, and they also don’t typically have many different forms of credit, such as a home and auto loan.
Therefore, their credit score reflects a lack of these two factors. The credit bureaus realize this and decided to implement the VantageScore system as an alternative credit scoring system to FICO. With the VantageScore 3.0, the bureaus place more emphasis on your payments history and utilization rate, and less focus on the other three factors.
As a result, if you are trying to get a credit facility with a lender, and you are a student or a young person below the age of 25, the lender is more likely to take into account your VantageScore than your FICO score when approving you for credit.
Qualifying Criteria for a Student Credit Card
Enrolling in college isn’t enough to get you approved for a student credit card facility. There are other factors lenders take into account before they accept you.
Your student status plays a minor role in the lender’s decision to take a risk on loaning you money. Some cards require you to be a student, while others don’t, so check the lender’s terms and conditions before you apply.
Federal legislation prohibits lenders from letting people under the age of 21-years old apply for a credit facility. The exception to the rule is if the person has proof of income, or they have a co-signer willing to sign surety over the account.
Comparing Student Credit Cards
When applying for a credit card facility, there are a few things you need to look out for before you sign with the lender. It’s a prudent strategy to shop around before you commit to any credit card facility, here’s what you need to look for in a prospective lender.
APR stands for Annual Percentage Rate, and it refers to the amount of interest the lender charges you on an annual basis. People with a good credit score that apply for a card facility typically receive an APR of between 17 to 20-percent.
However, as a student with no credit history, lenders are more likely to charge you a higher APR. Some lenders offer student credit cards with APRs of up to 25-percent. The reason for high-interest rates is to give you an understanding of how APR affects your credit. The APR also discourages you from spending unnecessarily on the card.
However, if you do max out your card, and struggle with making minimum payments, the lender is not going to care. Life is not like high-school, and they have no incentive to teach you about financial responsibility, instead; the lender will continue to charge you month-after-month.
Institutional Credit Reporting
Before you sign with the lender, ask them if they report your payment behavior to the credit bureaus. It’s also important to know if they report on a monthly or quarterly basis, as wells as if they report to all three credit bureaus. Reporting helps to build your credit score, and if the lender doesn’t communicate your behavior, then you are at a significant disadvantage.
Low Annual Fees
Annual fees on your credit card facility can cost you a bundle and rob you of any rewards you make on your spending throughout the year. Most credit card providers are willing to toss the annual fee due to the competitive nature of lenders in the credit card market.
Introductory Interest APR
Introductory interest rates of 0-percent over 6, 12, or 18-months are now fairly standard practice for most credit card facilities. However, it’s crucial that you understand what this term means. An introductory rate means that the lender charges you zero-interest for the duration of the introductory offer period, and then they revert to the previously agreed upon APR.
You need to be careful when signing, as most lenders will try and try you the highest APR possible after the period expires, and they bury it in the terms and conditions, hoping that the introductory rate blindsides you.
Check with the lender to see if you qualify for a rewards program. Most card facilities offer these programs, with cashback being the most popular. The lender gives you a percentage, typically between 1 and 5-percent for swiping your card on purchases.
If you plan on traveling for spring break, then you may get some benefit from a frequent flyer miles’ program, and receive other benefits such as free hotel stays. However, it’s important to note that flyer programs often incur an annual fee, so look for cashback rewards if you get the opportunity.
Other Types of Credit Cards
Tip – Watch Your Credit Utilization Ratio
Acquiring a credit card facility is a vital part of entering the financial system as a graduate. However, you must pay attention to your credit utilization ratio on your card. Many people don’t realize that this factor plays a crucial role in determining your credit score.
The credit utilization ratio refers to how much credit you use on your card facility. Banks and credit bureaus don’t like to see you max out the card, and they prefer if you only use 30-percent or less of the money available in the facility.
Therefore, if you have a card with a $3,000 limit, try not to spend more than $1,000 on the card to avoid damaging your credit score. Always pay your credit card bill on time and in full at the end of the month. Using this strategy is the fastest way to build your credit, and it helps you avoid interest charges on your spending.
Start Building Your Credit Early
The earlier you start building your credit, the better. By getting a head start on your peers with a credit card, you place yourself in a prosperous position. Your FICO credit score is a significant determining factor in your future financial success. Without a good credit score, lenders lock you out of the financial system, and you’ll struggle to find credit or even receive decent insurance premiums.
By building and maintaining your credit score straight out of college, you could have an 800+ score after a few years. People with 800+ credit scores are lenders, prime customers. You’ll find that a bank is willing to give you the best interest rates, and they’ll finance almost anything you need.
Building your credit as a student is vital to get you a head start in life as you launch your career. Before you decide to commit to a lenders facility, make sure you enquire about the reporting procedures.
Be wary of introductory offers, and always look for the card with the best balance of APR, low account fees, and rewards programs.
Use our guide of the best credit card facilities from lenders to assist you in making an informed decision.