What is a student credit card?

Student credit cards can pave the way for a bright financial future. When managed well they can provide an opportunity for students to build the credit history they may need upon graduation to rent an apartment or purchase a car. Unfortunately, without care, student credit cards can also pave the way for financial disaster and burdensome debt.

Essentially, a student credit card is a loan agreement. When you apply for a credit card, the creditor will establish a spending limit from which you borrow for purchases and/or cash. Each time you make a purchase your creditor pays the vendor (for example, Visa will send a check to the Gap for your new jeans). You then owe that money to the creditor. You may not exceed the limit established by the creditor (without incurring hefty penalties) although; with time and history the creditor may increase your spending limit. The money you “borrow” is repaid to the creditor each month with interest.

There are fees for the privilege of credit. When you purchase an item on credit you will pay more than if you purchased the exact same item with cash. Remember that when you use credit you are borrowing. The creditor makes money by charging interest each day that you carry an outstanding balance. You limit the amount of money that you repay if you pay your balance in full each month.

Before you decide if a student credit card is right for you:

(How will late payments affect your interest rate? What terms can you expect after the introductory rate expires? How much are the associated fees? How long is the grace period?).

There are many types of student credit cards available. Some are available to high school students. Others are available only to those 18 or older and enrolled in an accredited four-year college or university. Some require that parent's co-sign and others give credit based solely on the student applicants information and promise to pay.

any student credit cards come with very attractive introductory or teaser rates. Make sure you understand how long the rate will remain in effect as well as how much the regular rate will be and how your outstanding balance will be affected after the rate changes. Not all student credit cards come with great rates. Some come with higher rates and/or annual fees, but may offer reward points to use at stores students are likely to frequent. Weigh the pros and cons of every option against your reason for carrying a credit card and the impact it will have on your long-term financial goals.