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What Every Student Should Know About Credit
Recently I told my daughter to go pay something with a check. She responded by asking me if she had those somewhere. She literally had never written one. In a day of Venmo, Zelle, debit and credit cards, people, students included, just don’t seem to carry cash anymore and checks are becoming more and more archaic. Credit cards though, can be scary for students; particularly when they see the word “limit” and somehow skip over the fact that those balances have to get paid.
Given that we made some serious errors with our oldest regarding money management, we decided to approach things differently with young adult #3. We actually encouraged her to get a credit card. We began by explaining the reasons why:
- Establish credit
- Learn to manage money
- Provide ease and convenience when paying for things
- Take advantage of offers with accrued points ie: cashback, gift cards, and rewards
We did a little research and came up with the credit card most advantageous to her student lifestyle. There are many and there are some that are simply unattainable until further credit is established. Here is some of what we found.
Discover – This credit card isn’t taken everywhere, but it is often the easiest to get for students and a good way to start to establish credit. They actually offer a Discover It Student Cash Back Card, that has a cashback rewards program with different percentages back on varying things – ie: gas, department stores – that change quarterly, and Discover It Chrome for Students that have similar rewards. Bonus: Both cards pay students $20 cashback every year their GPA stays above 3.0, for up to 5 years. This card has no foreign transaction fees so if your student intends to study abroad, this can be key.
Citi ThankYou Preferred Card for College Students – This credit card is literally designed for college students and offers, like many others, perks like 2X points, which are redeemable for gift cards, electronics and more, for dining out and entertainment and 1x on all other purchases.
Capital One Secured Mastercard – Before they start spending, students need to make a cash deposit of $49, $99, or $200 into a Capital One account. The deposit entitles them to a credit limit of anywhere from $200 to $1,000, depending on their creditworthiness. They can subsequently raise their credit limit by making an additional deposit. This card is available to students who have poor or blemished credit and are looking to build it back up.
Bank of America Cash Rewards Credit Card for Students – this is the one our daughter has. It came with a sign-on bonus that forced her to spend a certain amount in the first 3 months to reap the benefits, but we helped with that to get her started. The rewards rates between 1-3%. Students can have a limited credit history to apply.
Venmo – is now offering MasterCard-branded debit cards. It will allow Venmo users to pay anywhere MasterCard is accepted in the U.S. and record transactions to the user’s Venmo account for easy splitting with friends. It can also be used at an ATM to withdraw funds from the Venmo’s account’s balance.
Obviously, there are many to choose from; this is just a sampling.
Many of these credit cards offer bonus points after spending a certain amount in the first few months. It is tempting and some of the time can be worth it, but students need to be careful not to over overextend themselves financially just seeing the bright lights of the bonus points and neglecting to realize that the bill still has to be paid monthly.
Another lesson learned…
My daughter proudly pays her credit card bill online. She is usually even early. What she did not realize at first was that when they don’t pay their bill in full, there will be interest accrued on the balance. Boy, the shock on her face when she figured that out. Many credit cards have incredibly high-interest rates. Paying the minimum can become a nightmare. Be sure they are aware of how this works.
Did you say Fees?
Some credit cards come with annual fees. There are many that don’t though. Students shouldn’t need to pay an annual fee to start. I think it’s a good idea for students to establish credit while in college, but the flip side is they can get into trouble. If they keep in mind their weekly/monthly budget and watch that they don’t surpass it; using a credit card for most purchases can realize benefits. Perhaps they should start with the minimum cap on spending or save it for emergencies only. One thing is for sure; they should never cosign for a friend. Raising fiscally responsible adults can be a challenge, but when they have graduated and set out into the real world, they will be glad they did.