Student Credit Cards- Teaching the Students How to Build Good Credit History

jaschmidt | Dec 17, 2009 |

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Student credit cards are now being issued to high school and college students. Credit card companies have found a good market niche to target and apply their marketing strategies to by issuing student credit cards. This is very convenient on the part of the students since they do not need to carry cash when paying their tuition fees and other school obligations. Aside from that, they can make some personal purchases using student credit cards.

Credit card companies are very broadminded in the issuance of student credit cards whereas other lending institutions require submission of other supporting documents. Once student credit cards are issued, students can use them similar to regular credit cards with minimal restrictions and limitations.

In applying for student credit cards, a co-signor or guarantor is normally needed. This is to assure the credit card company that in case of the student's failure to pay, somebody will assume the obligation. Generally, credit card companies require the parents or guardian as co-signor to guarantee the debt. As guarantor for student credit cards, they will assume payment of the debt.

Also, the guarantor will pay collection costs or late fees and the credit card company has every right to immediately collect from the co-signor without exerting any effort to collect from the student. Further, the wages will be garnished and credit score of the co-signor will be affected if ever the obligation is considered in default.

As parents and co-signor for the students and their student credit cards, the students should be guided on how to become responsible with the use of their credit card and how important credit history is. In the United States where most transactions are literally covered by credit card usage, it is considered quite uncharacteristic not to have any credit history at the age of 22. Hence, students should be constantly reminded that they have to earn a good credit rating by using their student credit cards wisely.

Credit card companies charge higher interest rates on student credit cards compared to traditional credit cards. Moreover, the normal spending limit is from $200 to $800 since most students have not established any credit history at all. Some other credit card companies require that a deposit account will be maintained to serve as security and as fallback in case the student fails to remit payment on due date. The deposit account will be automatically debited with the payment due plus corresponding fees charged against it for falling below the maintaining balance. The automatic debit is to preserve a good credit history while the deposit account should be replenished to meet the required maintaining balance

Every student cardholder must be conscious enough to monitor spending habits to avoid the pitfall of having too many debts. Otherwise, this will have a negative indication on the credit score. Thus, before using the student credit cards, students should be guided on how to budget their allowances to avoid overspending. Remember that the finances of students are very limited and they mostly rely on the allowance being given to them by their parents or guardian.

As a summary, student credit cards provide great experience to the students since they will have their financial freedom and responsibility. Having a credit card can help the student in case of emergencies. It is also one way for the student to establish good credit rating by paying the obligation on or before the due date. Improper handling by irresponsible students will result to poor credit ratings due to bad credit history. Hence, in order to avoid any negative reports on the credit history of the student, proper monitoring of finances should be done so that unnecessary charges and interest expenses can be avoided.