Pros and cons of student credit cards

College students who are new to credit and looking to build their credit score have a few tools to consider, including student credit cards which are designed to put students on a steady financial path. These unsecured credit cards are typically easier to qualify for than traditional credit cards.

The best student credit cards report your responsible spending and on-time monthly payments to the three major credit bureaus, helping you to build your credit score. This is an important consideration given that the average credit score for Generation Z is 680, which is about 35 points lower than the average credit score.

If you’re a college student looking to build credit and considering your options, weigh the pros and cons of student credit cards.

Pros of student credit cards

Getting a student credit card can be beneficial for a variety of reasons. Here are a few:

Student cards offer easier approvals to those with no credit

If you’re the typical student who doesn’t have much of a credit history, a significant advantage to student credit cards is that they tend to be easier to qualify for than traditional non-student credit cards. Some student credit cards — including the Discover it® Student Cash Back — don’t require a credit score to apply, and most have more lenient income qualification requirements. This means you can use student credit cards to build credit from the ground up.

You can build a positive credit history

The main reason to get a credit card in college is to begin building credit, and student credit cards help by reporting your account activity to the three credit bureaus — Experian, Equifax and TransUnion. Because payment history is the most important factor of FICO scores, making up 35 percent of the score, getting a student credit card and always paying your bill on time can have a major, positive impact on your credit score.

There are multiple benefits to having a good credit score. Here are just a few:

• Good credit allows you to get lower interest rates and better terms on loans you might take out in the future. For instance, if you apply for a mortgage loan to buy a house, your good credit score will garner you a lower interest rate. That in turn could save you thousands of dollars over the years in interest payments.
• Landlords may look more favorably on you if you have a high credit score because they’ll see you as more likely to pay your rent regularly.
• Potential employers may turn to your credit score to vet you for employment, so the higher, the better.
• A higher score can also help you qualify for credit cards with better features and higher rewards.

You can learn positive financial habits

Getting a credit card helps young people learn responsible financial habits, including tracking their spending and paying their bills on time. Since student credit cards tend to come with low credit limits at first, these lessons can be learned in a “sheltered” environment without the risks that come with higher credit limits.

Also, many student credit cards let you work toward a higher credit limit as you build positive habits, so by keeping up with your payments and making sure you don’t max out your card, you could see your credit limit rise automatically.

You can take advantage of rewards and other perks

Some student credit cards offer cash back on your purchases or other perks and benefits beyond rewards. The Capital One Savor Student Cash Rewards Credit Card, for example, offers perks like extended warranty protection on eligible items purchased with the card and travel accident insurance when you use the card to purchase your fare.

Other benefits may include free credit score access, no foreign transaction fees (which is great if you plan to study abroad) and 0 percent intro APR offers on purchases or balance transfers for a limited time.

Student cards make it easier to pay for emergency expenses

Having a credit card means you’ll have access to money for unexpected emergencies — from surprise car repairs to medical bills. Just be sure to have the cash to pay off your balance as soon as possible to avoid unnecessary interest.

You’ll enjoy a convenient and safer way to spend

Credit cards are convenient, and that’s especially true in today’s world. Unlike cash, a credit card can help you shop online with ease, and you’ll typically need a card to rent a hotel room or a car. Plus, credit cards are also safer to use than debit cards, offering robust fraud liability protections that debit cards don’t have.

Cons of student credit cards

While student credit cards are great financial tools, there are potential downsides to using them, too. Here are some examples of disadvantages to watch out for:

There is potential to rack up long-term debt

There’s no doubt that a credit card can feel like “free money.” But if you’re not able to comfortably pay off what you charge each month, you risk hefty interest fees that can spiral into long-term debt. In fact, 42 percent of Gen Zers carry a credit card balance from month to month, according to Bankrate’s Credit Card Debt survey. Even worse, 60 percent of all people who carry a credit card balance report being in debt for at least a year.

As you get your financial life up off the ground, take care to avoid getting carried away with the access to spending that cards offer. The key is learning how to use a credit card wisely.

High interest rates make borrowing expensive

Credit card interest rates currently sit above 20 percent on average, which is incredibly high. If you aren’t careful with your spending, you could end up racking up a considerable amount of high-interest credit card debt that can take years to pay down — and, importantly, eroding the credit-building opportunity that student cards offer.

Commit to paying more than your minimum each month, ideally shooting to pay off your bill in full, if you can.

Lower credit limits are typical

While it’s easier to qualify for a student card over traditional credit cards, the trade-off is that they tend to come with lower credit limits. Lower limits protect card issuers, since those without much of a credit history are viewed as a higher risk for defaulting on or not paying back what they borrow. After you’ve established a good credit score, you can set your sights on a stronger credit card with a higher credit limit.

You could hurt your credit score

Credit cards are a tool for building credit, but they’re not a sure thing. Since your payment history is the most important factor that makes up your FICO score, making late payments can dramatically harm your credit over the long run.

Also, note that your amounts owed and your credit utilization ratio — the amount you owe relative to your credit limit — make up another 30 percent of your FICO score. So, if you rack up large balances or constantly max your credit limit out, your credit score could be negatively affected.

Should you get a student credit card?

The pros and cons of student credit cards are worth keeping in mind before you sign up, and that’s especially true if you’re worried about how you’ll handle credit. If you feel like you might not make payments on time, or that you’ll be tempted to overspend, you may want to look into an alternative like secured credit cards or credit-builder loans.

If you’re confident that you can use a credit card responsibly, a student credit card could be a good first step into the world of credit. Follow the link to learn how to choose the right student card for your budget and long-term goals.

The bottom line

Student credit cards can be easier to qualify for than other credit cards, and they have their advantages for young borrowers. Unfortunately, they also have their disadvantages — especially since they might induce you to take on more debt than you can handle.

The best student credit cards can help you build a credit history with more lenient qualification requirements and lower fees than a traditional credit card. Many of them also offer the option to upgrade to a stronger card after you display responsible spending and on-time payments. Just take care not to spend more than you can comfortably afford to pay off each month.