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What Students Should Understand about Credit Cards

By Lesley Randall

Ajla Ćufurović, an economics major at the University of Georgia, said she is exploring what it means to have a credit card as a student.

Armed with a student Discover credit card, Ćufurović said she is taking advantage of an opportunity to earn cash back on ordinary purchases.

“I only use my credit card for gas in my car, large purchases or emergencies,” she said.

Using a credit card consistently on gas gives Ćufurović the opportunity to earn money back each month, and she said her account is set up so that those cash back rewards directly pays a portion of her monthly credit card bill.

An article from Bankrate.com, a website that reports on credit cards and other personal finance issues, suggested that Ćufurović’s approach is the correct one.

“The main reason to get a credit card in college is to begin building credit, and student credit cards help by reporting your account activity to the three credit bureaus — Experian, Equifax and TransUnion,” the article reported.

Discover, the card company used by Ćufurović, offers different credit cards that do not have an annual fee, but provides cash back rewards that are targeted to the student market. For example, the Discover it Student Chrome card offers cash back at gas stations and restaurants which caters to the expenses of a college student. 

But there are numerous cards and programs available to students, according to Felipe Correia, a finance professor at the University of Georgia, who said the best type of credit card for a student is one with no annual fee and a low credit limit. 

Bankrate’s reporting also suggested that when students are researching appropriate cards to consider those that do not require a credit history when applying for the first time.

Typically, credit cards targeting the student market offer a no credit history option,  according to Bankrate.com. Companies usually “set lower credit limits on these cards to better protect themselves from default,” Bankrate reported, which also fits the criteria Correia mentioned. 

Students with no consistent income may be faced with finding a parent or guardian who will help them build their credit, but Bankrate reported that co-signing is not as common as it was in the past. 

Major credit card companies such as American Express, Capital One, Wells Fargo and Discover do not offer student cards backed by co-signers anymore, according to Bankrate. 

But Bankrate reported that card companies still offer joint accounts, which may provide students with a card solution.

“Joint accounts are just what they sound like, they’re co-owned by both individuals, as compared to co-signed accounts in which the co-signer has no power within the account, but is simply the guarantor,” Bankrate explained. 

One of the downsides of students having credit cards is that they come with a spending limit, and for some, this creates the illusion that they have more money than they actually do, which Correia described as “the dematerialization of money.”

He said this becomes concerning when “the student only observes the spending side and not the repayment side.”

Nevertheless, Correia said that a credit card can be used to teach responsibility to a student in ways that resembles real life, and ultimately, he said, the student will be better prepared for life after college. 

 

 

Lesley Randall is a journalism student at the University of Georgia

 

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