- Another person who signs your loan and assumes equal responsibility for it. <a href='/glossary/what-is-cosigner' title='See the full definition of Cosigner'>read more</a>
- Credit History
- The record of how you've borrowed and repaid debts. <a href='/glossary/what-is-credit-history' title='See the full definition of Credit History'>read more</a>
- Credit Score
- A credit score is a number generated by a statistical system used to rate the credit of an applicants according to various characteristics relating to... <a href='/glossary/what-is-credit-score' title='See the full definition of Credit Score'>read more</a>
- Secured Line of Credit
- A secured line of credit is a credit account extended to a business by a financial institution wherein the creditor has established a lien against the... <a href='/glossary/what-is-secured-line-of-credit' title='See the full definition of Secured Line of Credit'>read more</a>
Credit cards for students can be used to establish a credit history before graduation. Sounds good, right? It can be, but since the typical college student graduates with some student loan debt, a decision to get a credit card shouldn't be made lightly. Here are three things you really need to keep in mind before you apply for a student credit card.
#1: College student credit cards are no longer easy to get
It was never quite a slam dunk, but getting credit cards for students used to be much easier than it is now. The Credit CARD Act of 2009 put some much-needed restrictions in place to protect young consumers. Card issuers are also not allowed to give gifts, T-shirts, or free pizza to encourage college students to sign up for credit cards.
The biggest obstacle for young adults under the age of 21, though, is that they now have to show that they have sufficient income before they can be approved for a credit card. This prevents someone from getting a student credit card when he or she has no visible means to repay a balance they owe.
Now, if the student can get a cosigner with good credit and an income, that helps the approval process with some issuers.
#2: Getting a cosigner can be a risky business
One way to get around the income requirement is to add a cosigner. This is also the way to get around the problem of having zero credit history. However, getting a parent or someone else with good credit to cosign on credit cards for students shouldn't be approached lightly.
When people cosign for a credit card, they take legal responsibility for the debt. So if you rack up debt and don't have the funds to make a least the minimum payment, then your cosigner gets stuck with the tab. Your cosigners can also suffer damage to their own credit scores if you use the card irresponsibly or don't make your payments on time.
If anything goes wrong, it can have a terrible impact on your relationship with your cosigner. So if you decide to get a cosigner to apply for a student credit card, make sure you both have a heart-to-heart talk about the details. Keep in mind, too, that there are some credit cards that don't allow cosigners.
If the main problem is that you don't have a credit history, there are two other options to consider: either become an authorized user on a parent's credit card or apply for a secured card. Build your credit history for a year and then apply for a student credit card (if you're still in college) on your own.
#3: Carrying a balance is the gateway to credit card debt
Once you start carrying a balance from one month to the next, it's a slippery slope. Seriously, compound interest can take your seemingly modest balance and turn it into a big steaming pile of debt before you know what hit you. This is the way folks end up in credit card debt. And since college kids have limited experience with money, they're especially susceptible to falling into the credit card debt trap.
A Fidelity study found that 70 percent of the class of 2013 graduated with an average debt load of $35,299. About $3,000 of that is credit card debt. It's stressful enough to graduate knowing you have student loan payments in your future. You don't want to add credit card debt to the mix. And if your student credit card is your first experience with credit, you need to put a few safeguards in place to protect yourself.
Before you apply for a student credit card, create a budget. A budget makes you aware of how much cash flow you have, so you know the maximum amount you can put on your credit card each month. You want to make sure you have enough money to pay your balance in full by the due date.
Next, you have to track your spending. No exceptions! If you don't know how much you spent on books or on pizza, then you're likely to overspend. There are a variety of fun ways to track your spending these days. And many of them are free. So choose a method and stick to it. If you use your student credit card responsibly, you can develop a solid credit history and a good credit score while you're still in school. More employers are starting to look at credit reports, so having a good credit score will help you get a good start on your post-college life.