NEW YORK (MainStreet) — The Credit Card Accountability, Responsibility, and Disclosure(CARD) Act, among other things, prohibits credit card companies from issuing credit to anyone under 21 unless the applicant has a stable source of income or a co-signer. The stipulation certainly made it more difficult for students to obtain their very first credit card, but it also has also led issuers to introduce some quality products better suited to a younger demographics’ needs (Hint: it doesn’t involve swanky travel perks).
MainStreet breaks down what students and their parents should be looking for when they go to sign up for that first credit card.
Financial Literacy Tools
College students and credit cards are a bit of a tricky mix. In one sense, it’s a good idea to start building credit in your early 20s since it helps achieve the type of credit score that nets a better auto or home loan later on. On the other hand, not every young person is going to refrain from racking up a huge bill they won’t be able to pay.
That’s why it’s a good idea to look for a credit card product that also gives students access to financial literacy tools. Capital One, for instance, pairs free credit monitoring with its Journey Student Rewards Card intended to help cardholders learn more about their credit score. The Citi Dividend Platinum Card, for students, also offers access to online credit education and budgeting tools.
Rewards (But Only for Good Spending Habits)
Generally speaking, college students shouldn’t concern themselves with rewards programs associated with purchases since it could inadvertently lead them to spend more. (Just ask MainStreet reporter Seth Fiegerman.) Instead, they should look for a card that rewards them for good behavior.
For example, Citi will reduce the APR associated with its Forward Card for College Students when the cardholder makes a purchase, pays on time and stays under the credit limit for three billing cycles. They also will award 100 bonus points at the end of each month a student stays within the credit limit and makes at least the minimum payment on time.
Similarly, Capital One gives its Journey cardholders 1% cash back on all purchases, but also offers a 25% bonus on the cash back each month when cardholders they pay their bills on time.
A Low Credit Limit
The credit limits associated with a card will vary depending on the credit profiles associated with the students or their co-signers, and generally span anywhere from $300 to $3,000. As such, issuers aren’t great about advertising the limits associated with each product, but you can always call and ask to have limit lowered if you think it provides too much spending flexibility.
It’s also important to note that students might also want to consider asking their parent to co-sign on a secured credit card, which requires customers to put down a sum of money upfront to cover the line of credit and thereby minimize the risk of default. These cards tend to carry annual fees (albeit lower ones) and rarely feature rewards, but could be a better fit for someone who doesn’t know how well they can handle their credit.
Already picked out your first credit card? MainStreet outlines the five things you should do with it.