Student Credit Cards 101 - The Basics of Credit Cards for College Students

In today's money-happy society, getting a credit card has almost become a rite of passage. Many young Americans may get their first credit card — in their own name — upon going to college (although, of course, there are those who get their own credit cards younger than this). However, before you commit to that plastic gold mine, memorize a 16-digit number, and buy a new laptop with all the trimmings courtesy of Visa, there are a few things to keep in mind that will help you turn credit to your advantage and save you some unwanted surprises. Read on to learn about the essentials of credit cards for college students.

Why Do I Need a Credit Card?

There are a variety of reasons why you might need a credit card and many advantages of credit cards when you have one. Here are some of the top-level reasons for why you should think about having a credit card:

  • Emergencies: Credit cards are a necessity for dealing with the unexpected. Blow a tire on a road trip through Nebraska? Have a family emergency and need airfare money? Credit cards can get you out of a tight spot when you don't have the cash you need.

  • Build credit history: In the long term, good credit is a necessity. Years from now, as hard as it may be to imagine, you might want to buy a home. For that, you're going to need at least three forms of credit, usually two credit cards and an auto loan in good standing. Charging responsibly now using your credit card and incurring and paying off balances will help build your credit history. Be mindful of building your history and how credit scores work: Credit reporting companies, such as VantageScore 3.0 and 4.0, rate your credit record on a scale of 300 (very bad) to 850 (very good). Anytime you are late on a loan or credit payment, your credit score can take a hit. In the short term, even one late payment could cause banks to deny you a loan, so financial discipline is essential.

  • Flexibility: Having a credit card enables greater flexibility in how you can pay for goods or services. For example, if something you’re eyeing to purchase takes only cash or a debit card, having a credit card allows you to buy other products that take credit while saving your cash for ones that require only cash for the transaction. Credit cards can also be useful for covering short periods of time when you’re waiting on cash to be deposited in your bank account, so you’re not completely out of resources to make basic purchases.

  • Credit card rewards: While increasingly lately, banks have been offering rewards and discounts at retailers when using their bank-issued debit cards, credit cards still reign supreme when it comes to earning rewards points on purchases. Rewards credit cards allow you to rack up points on each one of your purchases (or on certain purchases, like gas, groceries, hotels, airfare, etc.), which you can then turn into a credit on your credit card balance or use directly to reduce the cost of a purchase in one of the categories the rewards credit card has designated.

What Makes One Credit Card Better Than Another?

Not all credit cards are created equal. It's important to check the fine print to see how some credit card offers differ from others. There are many options out there, so before you apply for a card, shop around. Three main factors to consider when choosing a credit card: the rate of interest, referred to by credit card issuers as the annual percentage rate, or APR; the credit card annual fee; and the length of the grace period for payment.

Credit Card APR

The annual percentage rate, or APR, is the rate at which interest is accrued on the unpaid balance of your credit card. APR is one form of representing the interest rate you’re charged for using the credit card. Whereas the interest rate is the cost you pay for the privilege of borrowing money (in the form of credit), the APR calculates the percentage of the principal you will pay each year by taking into account factors such as fees and monthly payments you make. This is why often, when you visit a bank’s credit card webpage, you’ll see two columns: One for the nominal interest rate and one for the APR.

How credit card APR work

Credit card APRs are not as straightforward as multiplying the APR by your credit card balance. Instead, credit card APRs work on a daily basis because the interest on your purchases are compounded daily, not annually. The annual interest is the APR but the interest you’re charged is actually the sum of the daily interest charged to your average daily balance on your credit card. So, for example, if your credit card APR is 23.24%, and you carry an average balance for the month (or however long the billing period is, typically 21 to 31 days) of $5,960.26, you'll rack up $113.84 in interest charges.

How to calculate interest on credit card

So, how did we arrive at an interest charge of $113.84 on a monthly balance of $5,960.26? Since credit card interest is compounded daily, you do not simply multiply $5,960.26 by 23.24%, because that percentage is the annual rate. Instead, you must divide 23.24% by 365 to get the daily interest rate (also called periodic interest rate or daily periodic rate) which in this case equals roughly 0.0637%, rounded to four decimal places. You then:

  1. Multiply $5,960.26 (monthly balance subject to interest charges) by 0.0637% (daily interest rate)

  2. This gives you $3.79

  3. Then, multiply $3.79 by the number of days in your credit card billing period, in this case 30 days

  4. Resulting in an estimated interest charge of $113.85 or $113.84, depending on if the credit card issuer rounds up or down to the second decimal point

Naturally, you’ll want to look for a credit card with low APR so the interest charges on your credit card purchases won’t be too large. This means it’s essential to shop around and compare several credit cards in order to find the one with the best APR.

Credit Card Fees

Another critical factor when choosing a credit card are the fees that you are charged for having and using it. Most credit card companies charge a flat fee every year on your card, the aptly named annual fee. Some credit cards charge less than others do, so make sure to do your homework. Fortunately for college students, a vast number of student credit cards do not charge an annual fee. Popular credit cards for college students such as Discover it Student Chrome, Chase Freedom Student credit card, Capital One SavorOne Rewards for Students credit card, and Deserve EDU Mastercard for Students all do not charge an annual fee.

Other common credit card fees are balance transfer fees. A balance transfer is when you move the balance, or a portion of the balance, of one credit card to another credit card. Often people use balance transfers to take advantage of credit cards with 0% APR introductory periods, so that they can transfer the balance on their higher-interest credit card to the one with 0% APR and pay off the balance without any interest being charged. When you utilize a balance transfer, your credit card issuer typically charges you a percentage of the balance you’re transferring, hence the balance transfer fee.

Other credit card fees include a cash advance fee. These are often charged on the basis of a minimum dollar amount or a percentage of the cash advance, whichever is greater. For example, the Discover it Student Chrome card charges either $10 or 5% of the amount of each cash advance, whichever is greater. In addition, there are typically late payment fees and returned payment fees.

Credit Card Grace period

The grace period is the period of time between the end of a billing cycle and the date your payment is due. During this period of time, you may not be charged interest as long as you pay your balance in full by the due date. Thus, if your credit card provides you with a grace period and you don’t carry a balance, then you can avoid paying interest charges on new purchases if you pay your balance in full by the due date. If you do not pay your balance in full during your grace period, you’ll lose the benefits of the grace period, and you’ll be charged interest on the unpaid portion of the balance. Take note, however, that credit cards are not required to provide a grace period; it’s just that most credit cards tend to give you one.

Credit Card Rewards and Incentives

Some cards offer incentives for charging on their cards. Frequent Flyer miles, store discounts, and cash back on purchases are just a few incentives that some cards offer. If you can find a card with extra perks, that's great. But don't let the incentives make the decision for you. Again, the most important things to look at are the APR, fees, and grace period. There are several websites that publish this information to help you compare various cards.

What Are the Best Credit Cards for College Students?

When it comes to the best credit cards for college students, there are plenty of credit cards to choose from. Some credit card companies issue credit cards specifically for students, while other credit cards merely work well for students when they have little to no credit history. Here are some of the best credit cards for college students:

Capital One Journey Student Credit Card

Purchase APR Intro APR Annual Fee Late Payment
26.99% None $0 $40

Capital One Platinum Secured Card

Purchase APR Intro APR Annual Fee Late Payment
26.99% None $0 $40

Capital One Quicksilver Rewards for Students

Purchase APR Intro APR Annual Fee Late Payment
15.24%, 21.24% or 25.24% None $0 $40

Capital One SavorOne Rewards for Students

Purchase APR Intro APR Annual Fee Late Payment
15.24%, 21.24% or 25.24% None $0 $40

Chase Freedom Student Credit Card

Purchase APR Intro APR Annual Fee Late Payment
15.24% None $0 $40

Deserve® EDU Mastercard for Students

Purchase APR Intro APR Annual Fee Late Payment
19.49% None $0 $25

Discover it® Secured Credit Card

Purchase APR Intro APR Annual Fee Late Payment
23.24% None $0 $41

Discover it® Student Chrome Card

Purchase APR Intro APR Annual Fee Late Payment
13.24%-22.24% 0% for 6 months $0 $41

Discover it® Student Cash Back

Purchase APR Intro APR Annual Fee Late Payment
13.24%-22.24% 0% for 6 months $0 $41

What’s great about all these student credit cards is that none of them charge an annual fee. Plus, with two of them — Discover it Student Chrome Card and Discover it Student Cash Back — you get a six-month period of 0% APR on purchases, so you won’t be charged interest on things you buy with the card within those six months, as long as you pay off the balance accrued in full before the end of the introductory period.

Where Can I Get the Best Deal on a Credit Card?

One great place to look when choosing a credit card is close to home, namely, your local bank. Most of those glitzy mail offers come from a handful of large, national banks. Typically, while the offers appear good at first, the interest you will actually pay over time is higher because introductory rates don't last (usually they last 6 to 18 months, but there are exceptions).

A local bank will usually offer a good card with a fair rate that will not change. But as always, read the fine print. It may surprise you. While a card may say your monthly minimum payment is $20, the details will usually mention something like 'or 3% of the bill, whichever is greater.' You can wind up with a much higher monthly bill than you expected. In addition, you may find finance charges on your statement; some companies issue cards that begin charging interest shortly after a purchase, rather than giving a 25-day grace period to pay.

How to Get Credit Cards for College Students With No Credit

The best credit cards for college students are ones that ideally have low APRs, low or no annual fee, low balance transfer fees and penalty fees, offer a grace period, and offer credit card rewards or other incentives. However, getting your hands on the best credit cards for college students isn’t a simple straightforward step of applying for one.

There’s a frustrating catch-22 when it comes to getting your first credit card, including a student credit card. In order to be approved for a credit card, you need to have some credit history in your credit profile. If you’re young and have had your parents pay for most of your things in life thus far, not to mention you’ve used cash or your debit card for purchases, then it’s very likely that you won’t have enough credit history to qualify for a credit card; this is called having a “thin file” in terms of your credit history. Luckily, there are ways around this catch-22 as a young prospective credit card applicant.

Secured Credit Cards

One strategy for how to get a credit card with no credit is to apply for what’s called a secured credit card. The way secured credit cards work is that you must put down a deposit of money, known as a security deposit, which the credit card issuer will hold as collateral. The collateral is necessary as a guarantee for the credit card lender against you running up too many charges on the credit and can’t repay, so they can get their money back if you can’t pay your balance.

Because secured credit cards require a deposit and are meant for users with little to no credit history, they tend to have low initial credit lines; often, these credit lines are equal to the initial deposit you put down. However, if you use the secured credit card responsibly and make payments on time, eventually your initial credit line can be increased. Your credit line can also be increased by adding additional funds to the underlying collateral deposit. And all the while you use your secured credit card responsibly, you are building up your credit history.

Student Credit Cards

Not surprisingly, some of the best credit cards for college students with no credit are the specific student credit cards companies offer to college students. Depending on the credit card issuer and the product, you might not need a long credit history or high credit scores to qualify for a student credit card. Since these student credit card issuers know their product is geared for younger Americans, they are aware that applicants may likely not have a thick credit profile. Student credit cards typically have lower initial credit lines than other standard credit cards, but they still offer a viable option for college students with no credit history to own their own credit card and build their credit profile through responsible spending and repayment.

Credit Cards with a Co-Signer

If you’re unable to qualify for a credit card on your own, which is common, you may be able to qualify for it when you apply with a co-signer. Unfortunately, not as many credit card issuers nowadays allow co-signers, though there still are credit cards out there that allow this.

If you pursue this strategy and find a credit card issuer that allows co-signers, it’s important to note some critical features that come with the territory. First, the co-signer will be responsible for paying back your debt if you do not or cannot. Second, the co-signer may be responsible for any late fees or collection costs that you incur. As a result, negative events, like late payments or returned payments, could become part of the co-signer’s own credit history as well as yours. Still, if you use your credit card responsibly by promptly paying on time, especially above the minimum payment, a co-signer credit card can be an invaluable way to help college students with little to no credit build their credit history.

What are the Best Strategies for Paying a Bill?

There's really only one good strategy: Pay in full, within the grace period. If you can't afford that, pay as much over the minimum as you can. A debt consolidator estimates that, depending on the size of your bill, about $13 of your $20 will go to interest, leaving only $7 to pay back the original amount. Suppose, though, that you pay $20 of a $200 bill two weeks before the deadline. You earn extra money the next week and pay $20 more, still before the deadline. Do you still have to pay the next month? Yes. And if you don't, you lose points on your credit rating and incur penalties. In short, if you use your credit card knowing how and when you can pay it back, you can make it work for you.