Student Credit Card Options

Student credit cards often come with higher fees and interest rates.

Used wisely, credit cards can reward young consumers with a good credit report. Conversely, poor credit practices can result in a poor financial start and years of debt and interest payments. Federal law restricts credit card availability to students, allowing few people the opportunity to open credit card accounts before age 21.

Advantages

Despite being a temptation to cash-strapped college students, credit cards offer these young people some benefits as well. Students who use credit cards responsibly and with caution can build the foundation of a healthy credit rating for their adult lives. When they leave school, it may be easier to purchase a first home or get a car with an established credit history.

Disadvantages

Student credit cards often come with high interest rates and steep annual fees. Introductory annual percentage rates (APRs) can be as high as 20 percent or more, causing students to pay more money in interest on revolving monthly balances. Furthermore, students who lack fiscal responsibility may have trouble differentiating between necessary and recreational credit card usage.

The Credit Card Act

In 2009, the Credit Card Act became federal law, regulating the traditional practices of credit card issuers in an attempt to give consumers better understanding of their debts. Under the law, credit card companies may solicit credit applications from students, but can no longer issue credit cards to students under age 21 without an adult co-signer or without proof that the student has funding to pay credit balances. The law also prohibits credit card solicitation within 1,000 feet of college campuses if the company offers free food or gifts to lure students.

Types

There are two types of credit cards available to students who qualify. Those with little or no credit history may be interested in a secured credit card, in which the credit line is determined by the amount of money the cardholder deposits as collateral on the credit card. Secured cards help the student build credit, but also assure the lender of payment. Alternatively, unsecured credit cards require no collateral and are often more difficult to obtain without an established credit history.

References

• CollegeBoard.com: A Credit or Debit Card for Your College Student?
• Bankrate: Cards for College Students
• MSN Money: What the New Credit Card Law Means for You