Student Credit Cards

The Basics

We all know that credit cards are convenient, but they are fast becoming a necessity. Even high school and college students are getting into the game. A student credit card works in the same way as any other card but is specifically geared toward high school and college students and often comes with some restrictions.

Some companies require a parent or guardian to act as a back up source of payment. The parent is asked to co-sign a student credit card. The responsibility of the co-signer is to cover any debts a student may incur if he or she is unable to pay them. In addition the interest rates on a student credit card can also be higher as this minimizes the financial risk to the company. Finally, as few students have established credit ratings, the spending limit can be significantly lower for a student credit card. It is usually kept between $500 and $1000.

There are also some positive aspects to student credit cards. A student credit card can establish a good credit rating. A credit rating is important for anyone who plans to borrow money to finance a car, a house or, for those more fortunate spenders, a world cruise. A student credit card, if managed wisely and paid off regularly, can be a first huge step toward financial independence. With a solid credit rating, a student's chances of being approved for a full loan are greatly improved.

A student credit card teaches financial responsibility within reasonable limits. Because the student credit card works like its adult counterpart, mastering its use can be beneficial to a student's money managing skills in the future. It will give him an opportunity to create a budget and stick to it. This is a necessary financial skill and one that will become a habit if started early.

As convenient as a student loan may be, there are possible pitfalls. But if a young person is warned, much can be done to avoid them. To avoid overspending, creating a budget is probably the best protection a student can have. A realistic view of the money coming in and going out is essential. If at all possible, a student will be wise to stick within the budget limits. 

'If you can't afford it, walk away'. This sounds obvious, but a credit card has a lot of power. That little piece of plastic gives a young person the immediate means to buy a ticket to a concert, a new pair of jeans or a fancy dinner for that new girlfriend. It's easy to think, 'I'll worry about that later'. Resist! It's better to worry about it now.

A student credit card, when used responsibly in moderation, can be a huge step toward financial independence. If it is treated with respect, it will remain a servant instead of the master.