Building credit in college: Secured vs. student credit cards

For college students looking to build credit, choosing the right credit card can be a crucial decision. Two popular options are secured credit cards and student credit cards. Both can help you establish a credit history, but they have distinct features and requirements. This comprehensive guide will explore the differences between secured and student credit cards, helping you make an informed choice for your financial future.

Student credit cards are specifically designed for college students who are just beginning their credit journey. These cards are typically unsecured, meaning they don't require a security deposit. They often come with features tailored to student needs and spending habits.

Many major credit card providers offer student credit cards. Most demand that you be at least 18 years old and presently enrolled full- or part-time in a recognized school. You'll also need to provide proof of regular income or have someone, such as a parent, cosign your application for you.

Benefits of Student Credit Cards

Early Credit Building: Student cards can help you establish a credit history from the start of your college career.

Financial Education: Many issuers provide educational resources to help you manage your finances responsibly.

Rewards Programs: Some student cards offer cash back or points on common student expenses like textbooks or dining.

No Security Deposit: Unlike secured cards, student cards don't require an upfront deposit.

Potential for Credit Limit Increases: With responsible use, you may qualify for higher credit limits over time.

Drawbacks of Student Credit Cards

Higher Interest Rates: Student cards often come with higher APRs compared to traditional credit cards.

Lower Credit Limits: Initial credit limits are typically low to minimize risk for issuers.

Stricter Eligibility Requirements: You must be a student and may need to provide proof of income.

Student credit cards often feature higher interest rates than traditional credit cards because students, correctly or not, are seen as larger risks. Many student credit cards have annual percentage rates (APRs) that exceed 20%.

What Are Secured Credit Cards?

Secured credit cards are an alternative option for those looking to build or rebuild credit. These cards require a security deposit, which typically becomes your credit limit.

With a secured card, you deposit money with a bank, which is then used as collateral. The credit limit on your secured card may be the same as, or somewhat lower than, the amount you deposit. Typically, deposits start around $200.

Benefits of Secured Credit Cards

Easier Approval: The security deposit reduces risk for issuers, making approval more likely.

Credit Building Opportunity: Regular reporting to credit bureaus can help establish or improve your credit score.

Transition to Unsecured Cards: Many issuers offer a path to upgrade to an unsecured card after responsible use.

Refundable Deposit: Your deposit is typically refundable when you close the account or upgrade to an unsecured card.

Available to Non-Students: Secured cards are an option for anyone looking to build credit, not just students.

Drawbacks of Secured Credit Cards

Required Security Deposit: The upfront deposit can be a financial burden for some.

Potential Fees: Some secured cards charge annual fees or application fees.

Lower Credit Limits: Your credit limit is typically equal to your security deposit.

Higher Interest Rates: Like student cards, secured cards often have higher APRs.

A major disadvantage: the security deposit. The main reason you're likely to be approved for a secured credit card is the same reason you might be hesitant to seek one in the first place. If you're a cash-strapped college student, a few hundred dollars may seem like a lot of money to put up.

Comparing Secured and Student Credit Cards

When deciding between a secured and student credit card, consider the following factors:

Eligibility Requirements

Student Cards: Require proof of college enrollment and sometimes income verification.

Secured Cards: Available to anyone, regardless of student status, but require a security deposit.

Credit Building Potential

Both card types can help build credit when used responsibly. The key is ensuring the issuer reports to all three major credit bureaus.

Costs and Fees

Student Cards: May have lower fees but higher interest rates.

Secured Cards: Require an upfront deposit and may have additional fees.

Rewards and Benefits

Student Cards: Often offer rewards tailored to student spending.

Secured Cards: Typically have fewer rewards but focus on credit building features.

Credit Limits

Student Cards: May offer slightly higher initial limits with potential for increases.

Secured Cards: Limits are typically equal to the security deposit amount.

Making Your Choice: Student Card or Secured Card?

Choosing between a student card and a secured card depends on your individual circumstances:

Consider a Student Card If:

• You're enrolled in college and can provide proof of enrollment.
• You have some form of income or a cosigner.
• You prefer not to tie up money in a security deposit.
• You're interested in student-specific rewards and benefits.

Consider a Secured Card If:

• You're not a student or can't qualify for a student card.
• You have little to no credit history or poor credit.
• You can afford the security deposit.
• You're focused primarily on building credit rather than earning rewards.

Tips for Using Your Credit Card Responsibly

Regardless of which type of card you choose, responsible use is key to building a positive credit history:

Pay on Time: Always make at least the minimum payment by the due date.

Keep Balances Low: Try to use less than 30% of your available credit.

Monitor Your Credit: Regularly check your credit report for errors or improvements.

Avoid Cash Advances: These often come with high fees and interest rates.

Use Rewards Wisely: If your card offers rewards, use them to your advantage, but don't overspend to earn points.

The Long-Term Perspective

Remember that your first credit card is a stepping stone to better financial products in the future. Many of life's milestones after graduation, such as obtaining a mortgage for your first home, may be dependent on your credit score. Your credit score can also influence your insurance premiums, whether a landlord would rent you an apartment, or whether an employer will hire you.

Both secured and student credit cards can be excellent tools for building credit as a college student. Student cards offer the advantage of no security deposit and potentially better rewards, but they have stricter eligibility requirements. Secured cards are more accessible and can be a great option for those who can't qualify for a student card or prefer a lower-risk way to build credit.

Ultimately, the best choice depends on your individual financial situation, credit history, and long-term goals. Whichever option you choose, remember that responsible credit use is the key to building a strong financial foundation for your future.

As you embark on your credit journey, keep in mind this advice: "Either a student credit card or a secured credit card can be a good way for students to build a credit history for the future. You might start by applying for a student card, since it doesn't require a deposit. If you're turned down for a student credit card, a secured card can be a good alternative."

By understanding the pros and cons of each option and using your chosen card responsibly, you'll be well on your way to establishing a positive credit history that will serve you well beyond your college years.