College students: is it time for a credit card? What you need to know before you apply for credit

When it comes to college students and credit cards, there are plenty of opportunities to improve financial literacy, and some of the best teachable moments arrive before college careers begin. According to a U.S. News & World Report survey, 40% of college students reported they were not taught about credit cards before they received one. While many parents may hesitate to encourage college students to apply for credit cards, it’s really important for them to establish credit and build a positive credit history while they’re in school so they’re better prepared for life after graduation. Their credit rating will impact their ability to rent or buy a home, purchase a car, and apply for loans. Learning about credit cards is Responsibility 101.

Chapter 1: Open lines of communication before opening lines of credit

Studies show that children form money habits by age 7. Parents can help ensure these habits are healthy ones by teaching them age-appropriate financial lessons throughout childhood and adolescence, including: the importance of saving, how to comparison shop, resist impulse buys, build a budget, and live within your means. It’s also important to explain the difference between credit and debit cards. While they may look the same, these cards have very different functions. A debit card is actually cash, and a credit card is borrowed money. It’s always best to keep the lines of communication about finances open with your children before they’re ready to open those lines of credit.

Chapter 2: Student credit cards

College students who are ready to start building credit may want to consider applying for a student credit card. Those who are mature enough to handle the responsibility can start building a positive credit score as early as age 18.

As its name implies, student credit cards are tailored to meet the needs of college students, functioning as a person’s first credit card — a pre-cursor to the traditional credit cards they’ll need post- graduation. To qualify for a student credit card, you must:

• Be a student; and
• Meet income and credit profile requirements (both of which are more lenient than requirements for traditional credit cards).

Applicants who don’t meet the criteria above may qualify for student cards that accept a co-signor.

According to Experian, the main differences between student credit cards and traditional cards include:

• Credit limits: Student credit cards typically have lower credit limits than traditional cards. As payments are consistently made on time, higher credit limits may be granted to student card holders, but initially, the limits are set conservatively. Be patient. Once you graduate into the world of traditional card holders, there will be access to much higher credit limits. When that day comes, the general rule of thumb is not to exceed 30% of your total credit limit at any time. If you do, your credit utilization rate will be considered high, and that will have a negative impact on your overall credit score.
• Secured/Unsecured Cards: Student credit cards are usually unsecured, while traditional credit cards may be secured. A secured card requires a deposit upfront, which automatically becomes the credit limit for that card. Unsecured cards do not require card holders to make a deposit prior to card activation. Secured cards are a good tool for non-students with no credit or poor credit to improve their credit score by making regular payments on time.
• Rewards: Designed with students in mind, student credit cards are more likely to offer perks that only apply to college students. For example, they may offer an annual statement credit to cardholders with a GPA of 3.0 or higher. However, since the purpose of student credit cards is to establish good credit, rewards are typically more limited than the benefits traditional credit card holders enjoy. Traditional card holders enjoy an increase in their rewards, such as sign-on bonuses and travel miles, as their credit score rises (something to look forward to in the future!).

Chapter 3: Choose wisely

When it comes to student credit cards, there are many options available. When shopping for a student credit card, the experts at Money Under 30 suggest you look for the following:

• A low APR (annual percentage rate). Be sure to read the fine print when it comes to APR. Some credit card companies offer 0% APR as an introductory rate for new cardholders. Review the terms carefully and understand when that introductory rate ends (usually between a year and 18 months) and what the APR will be after the introductory period.
• No or very low annual fee.
• Review the terms on late fees. It’s important to know how much you’ll be charged if you’re late on a payment.
• Look for a card offering rewards that fit your lifestyle. Some cards offer benefits or rewards based on how much you spend. For example, for those who travel frequently, it may be wise to apply for a credit card offering frequent flyer miles or travel points. Others may be interested in cash back rewards. Start your research by checking out The Best College Credit Cards of September 2020 and Credit Cards for College Students.

Chapter 4: Other options to start building credit

• Apply for a secured card. Students who don’t meet the criteria for student credit cards may want to consider establishing credit through a secured card. A cash deposit is required during the application process. Talk to your Banker about how much is required (it’s often a modest amount). Many banks, including Fidelity, offer a convenient online application, too.
• Students can be added as authorized users. Parents may add children to their credit card account as authorized users to help them establish credit. As an authorized user, they will be able to make purchases independently using your card and establish a credit history.

Learn More

Fidelity Bank has built a strong history as trusted advisors to customers served and is proud to be an active member of the communities it serves. With branches located throughout Northeastern Pennsylvania and the Lehigh Valley, Fidelity Bank offers full-service Trust & Investment Departments, a mortgage center, and an array of personal and business banking products and services. The Bank provides 24-hour, 7 day a week service to customers through a variety of digital banking tools, branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 1-800-388-4380.