Student Debit Cards
It is important to start building a strong credit history before you actually need to use credit to make purchases. To qualify for a car loan, or to purchase a home a credit check is necessary to not only determine if you will receive the loan, but at what percentage rate the loan will be given. Good credit can save thousands of dollars over the course of an extended loan, and bad credit can cost a fortune. Since all consumers start off with no credit history, how is it possible to get credit in the first place?
Credit Cards For College Students
Student credit cards are a good way to make a strong start into the world of credit. So what makes student credit cards different from standard cards, and are debit cards just as good for student?
Students have to pay bills while they are away from home. It is likely that this is the fist time many students have been responsible for a monthly payment, and while this can be stressful it is also a great opportunity. A student credit card can often be used to pay monthly bills as well as track spending. While a debit card can do this as well, a student credit card will pay the bills and build credit history. This great opportunity to build credit can also be disastrous when handled poorly. Getting off on the wrong foot when starting a credit history can take a long time to clean up. In most states bad credit will stay with the consumer for seven years.
A student credit card carries with it the same benefits and responsibilities as a standard card. Each month the bill is due, or at least a minimum payment and an APR is applied to any outstanding balance on the card. The application process is also the same, but the creditors are generally a great deal more lenient as they are expecting a new consumer with no credit history. Creditors also know that many times a student who has financial troubles can many times turn to parents for assistance thus lessening their exposure to some degree.
A student's credit history can start the moment a student card is received. The easiest way to make sure that the first experience with a credit card is a good on is to always pay the card balance in full each month. This will show on a credit report as an open line of credit with no missed or late payments. Keep this up as long as possible to avoid interest on the card and a solid credit history will begin.
From the perspective of a parent, it is important to discuss the responsible use a credit with a child before a card is received. The inevitable credit card bill be arriving soon, and someone is going to have to pay it. Make sure the child knows this and is ready. Even if it is decided that the parents will be responsible for the card payments, it is a good idea to have the child get involved. Have him or her read the bill, read each line item to make sure it is correct, and finally fill out the check and mail it. This process will keep spending top of mind for the student consumer, and avoid the idea that the credit card isn't money. Many students who use their parent's credit card for regular purchases at school get the wrong idea about credit cards and how they work. Students can be made to think that the credit card is a magical device that buys things with no consequences. This type of thinking leads to bad habits and a rough road ahead.
Advantages
- Builds credit
- Helps with school purchases
- Teaches financial responsibility
Disadvantages
- Can harm credit
- Can create long term debt
- Harder to manage for a parent
Debit Cards For College Students
Debit cards are often confused with credit cards, and although they can perform many of the same duties they operate entirely different from each other. A debit card pulls funds from a specific account to purchase items, and although the debit card is “swiped” by a merchant like a credit card, the funds are immediately deducted from the account. The limit of the debit card is the amount of funds in the account tied to it.
This is one of the best ways a parent can limit the spending of their child who is away at school, and it is a convenient way to send money to a student. Parents can simply put more money into the debit account and the student will have almost immediate access to it. Debit cards carry no interest fees, and there are never late charges but other fees may apply. The major drawback to a debit card is that it does not build credit.
Advantages
- Will never harm credit
- Is easily managed
- Will never create debt
Disadvantages
- Does not build credit
- More limited spending potential
- Less secure in online purchases
Credit cards can be dangerous to a young consumer and not everyone is ready for one when they first go to college. Deciding not to apply for one for your child may be the right choice, but remember that creditors will be approaching students directly and possibly making a credit line available. It may be better to get involved and help manage your child's first credit card as opposed to trying to avoid it.
One great option is to get your child both a credit and a debit card. Have regular expenses such as rent and utilities applied to the credit card, and make more dynamic purchase with the debit card. This is the best of both worlds.