Student Financial Literacy Guide: Types of Student Credit Cards
Rewards cards provide incentives to cardholders to use the card. Some credit card companies offer a percentage of card activity credited back to the user in cash. Other rewards cards let users earn points or miles that can be redeemed for goods, services or airline fares.
Cash back programs
The simplest type of rewards program is a cash back program. A cash back card credits a percentage of your total transactions back to your account. Some cards offer enhanced cash back rewards programs in certain spending categories, such as restaurants or entertainment. The BankAmericard Cash Rewards Credit Card for Students, for example, provides 2 percent cash back for gas and restaurant purchases and 1 percent for all other purchases.
Other cards provide higher bonus cash back incentives in categories that rotate every few months. For example, the Discover it for Students Card and Chase Freedom Credit Card have 5 percent bonus cash back on spending categories that rotate every quarter. One thing to keep in mind for cards with rotating bonus categories is that you have to enroll in the program each quarter to get the 5 percent bonus cash back.
Points and mileage programs
Other types of rewards programs let you accumulate points or miles that you can redeem for discounted travel tickets or hotel rooms, or for prepaid cards that you can use at participating merchants.
For example, the Citi ThankYou Preferred Credit Card for College Students offers cardholders two points for every dollar spent on gas and at restaurants and 1 point per dollar for all other purchases. You can go online and redeem your points for cash (typically at 0.5 cents per point), or you can trade points for merchandise from a number of popular vendors.
Some cards will offer sign-up bonuses to get you to open an account and to get you in the habit of using your card to earn rewards. While sign-up bonuses are less commonly offered for student credit cards, the Citi ThankYou Preferred Credit Card for College Students gives you 2,500 bonus points to get started, provided you charge $500 in purchases on the card within the first three months.
Secured credit cards
If you can’t qualify for a traditional credit card, you may want to consider a secured credit card. A secured card is different than a traditional credit card, also known as an unsecured card, because it requires a cash deposit as collateral to hold the account. You send a cash deposit to the bank when you open the credit card account and the bank then extends you a line of credit, which is usually equal to your deposit.
By paying your card on time for a number of months, you may be able to improve your credit score, qualify for a higher credit limit and qualify for an unsecured version of the card if one is available. If your account graduates to unsecured status, the bank will return your deposit.
For example, the Citi Secured MasterCard requires a minimum deposit of $200 to open the account. Applicants have the option of depositing more to get a higher limit on the card, up to $2,500. This issuer holds your deposit for 18 months. Other secured card issuers, like Discover, who issues the Discover it Secured Card, more commonly return deposits and upgrade prompt payers. In the case of Discover, responsible cardholders may be promoted to unsecured status after seven months of on-time payments and responsible credit use.
While secured cards have high interest rates, if you pay off your balance every month and don’t take cash advances, the APR doesn’t matter. Furthermore, it’s more difficult to fall into debt with a secured card: Limits are generally low, and often equal to the amount you have on deposit with the bank. Meanwhile, you can still accumulate travel, points or cash back rewards if your secured card offers them.
The low limits can be a problem, though, when it comes to your credit utilization rate: If you have only one line of credit – a card with a $200 limit, and you spend $100, your credit utilization ratio is 50 percent, which can lower your FICO score.
There is no difference between secured and unsecured credit cards when it comes to building your FICO score, says Gerri Detweiler, author of “The Ultimate Credit Handbook” and “Finance Your Own Business.” “If you need to build or rebuild your credit, secured cards are absolutely a legitimate credit building strategy,” she says.
Secured credit cards vs. prepaid debit cards
Both prepaid debit cards and secured credit cards share the advantages of convenience and safety, and it’s impossible to overspend with a prepaid debit card. However, as a credit-building tool, prepaid debit cards don’t work. Unlike credit card issuers, including issuers of secured cards, prepaid debit card issuers don’t report credit usage to consumer credit bureaus.
The Best Student Credit Cards of 2017
There is no one credit card that’s a perfect match for every student. Different students have different needs, and will use their cards in different ways. Some students will need to carry a balance; others will use them to maximize rewards and convenience and will pay off the balance every month. U.S. News evaluated 29 different student cards based on their terms, fees and rewards potentials and selected the top cards for each type of spending habit and background.
- Discover it for Students
- Discover it Chrome Card for College Students
- Bank of America Cash Rewards for Students
- Citi ThankYou Preferred Card for College Students
- Journey Student Rewards from Capital One
- Discover it Secured Credit Card
Discover it for Students
Best for cash back with rotating bonus categories
Discover it Chrome Card for College Students
Best for cash back with gas and dining bonus categories
Bank of America Cash Rewards for Students
Best for cash back with gas and grocery bonus categories
Citi ThankYou Preferred Card for College Students
Best for varied rewards with dining and entertainment bonus categories and sign-up bonus
Journey Student Rewards from Capital One
Best for flat cash back on everyday spending
Discover it Secured Credit Card
Best secured card with cash back