Student Credit Cards: What You Should Know
Although credit card issuers view student credit cards amongst the highest credit risk groups and accordingly charge higher interest rates, they provide an excellent opportunity for young people to start establishing a credit history that will ultimately get them a credit rating.
A good credit rating is not only important in helping a person secure credit but is also very useful when it comes to securing job, getting insurance and a host of other important things most people will need to get done in their lifetime.
Evidence that a good credit rating is of absolute importance is the popularity of any offer that purports to help repair a bad credit rating.
Characteristics Of A Student Credit Card
A student credit card will usually have more restrictions than an ordinary credit card. Many student credit cards typically require the additional signature of a parent. This is a commitment that in the event that the student credit card holder is unable to pay, the parents will foot the bill.
Student credit cards will also tend to have a low credit limit, usually as low as $500. The bank sees student credit cards as a starting point for the individual where there is no credit history or rating. Banks and credit card issuers rely very heavily on a person’s credit rating when making decisions about credit limits. The low limit gives the student a chance to demonstrate their budding skills in managing their personal finances and at the same time protects the bank by limiting their exposure.
Another method used to help minimize the bank’s exposure in high-risk student credit cards is in the higher interest rates charged.
Still every credit card issuer has remained keen and rather enthusiastic about promoting student credit cards mainly because they all view it as a good chance of ensuring customer loyalty for life by fighting to be the first credit card brand in a young person’s wallet.
Student Credit Cards Help Cultivate Responsibility In Youngsters
What is probably the largest benefit of student credit cards is that they help cultivate responsibility in young people and help them develop personal financial management skills as they prepare for adulthood.
The stark reality is that while a credit card represents freedom and the chance to enjoy the benefits of having credit, the temptation to over-indulge one-self and over-spend is quite huge. You just need to look at the large numbers of adults who fall into serious credit card debt to appreciate this fact.
So a student credit card becomes an important step in giving practical training in financial management and responsibility to young persons. It is the sort of training and experience that cannot be obtained in any other way. And yet it is critical to the financial success of any individual.
Secured Student Credit Cards Still Count Towards The Student’s Credit History
Despite the fact that a student credit card will usually be secured either by a bank deposit or be the sort that is co-signed or co-owned by a parent or guardian, it still counts towards the young person’s credit history and will go towards the establishment of the individual’s credit rating later in life.
This is precisely the reason why teenagers and parents should take student credit cards much more seriously than they do currently.
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