Consumer Alert: The best credit cards for college students to build their credit history

ROCHESTER, N.Y. (WHEC) — Monday was moving day for students at RIT.  And soon, universities across our area will be welcoming students back.  That’s why we provided consumer alerts especially for college students last week. 

My son is a college student and has gotten about a dozen credit card offers. The latest is the Discover it Student Cash Back card.  While LendingTree and Bankrate give the card top marks, I told my son that I needed to do some research before I’d let him apply.

According to a study done by College Finance, students accumulate on average $3,280 of credit card debt.

That may not seem like much.  But because college students don’t have a credit history, banks give them a high interest rate, often around 27 percent.  And if you’re only able to pay the minimum, it will take almost 5 and a half years to pay off a debt of $3,280.

But if you want to get a loan for a car or a house after graduation, you need to start building your credit history now.  So I chatted with Matt Schulz, the chief credit analyst with LendingTree about the best ways for students to build credit.

If mom and dad have good credit and they have a few credit cards, and they feel that their kid is up for the responsibility, making their kid an authorized user on one of their credit card accounts is a really good way to jump start your kids’ credit,” said Schulz.

He points out it’s not without risk.  You may have a high credit limit, and if your kid isn’t responsible, you could be on the hook for a big debt.  But the upside is, even if your student never uses your card, he or she can still benefit from Mom and Dad’s great credit habits, because the student getting credit for your on-time payments.  Make sure and check with your card before making your student an authorized user.  Not all credit cards report credit card usage for authorized users.

Here are some other ways to build credit in college.  My son gets lots of offers for student credit cards. Here are the pros and cons.  First, here’s the Pros:

• Teaches money management
• Can help during an emergency
• Can build credit with less risk.

Here are the cons:

• Fewer perks than a regular credit card.
• Fewer perks than a regular credit card
• The interest rates are high.
• The credit limits are low.

And that low credit limit is an important thing to consider.  That’s because your credit utilization rate has a huge effect on your credit score.  Your utilization rate is the total amount of your charges divided by your available credit.  So let’s say your student credit card has a limit of 500 bucks.  And you have a balance of 400 bucks. $400 divided by $500 is 80 percent. And that would actually hurt your credit score.  Your utilization rate should always be less than 30 percent. 

Schulz says you should also consider a secured credit card.  The amount you put on the card is your credit limit.  You have to make monthly on-time payments just as you would any other card.  Schulz recommends the following student and secured cards for college students.

Discover It Chrome for Students

https://creditcards.lendingtree.com/credit-card/discover-it-chrome-students

Capital One SavorOne Rewards for Students

https://www.capitalone.com/credit-cards/savorone-student/

Chase Freedom Student card

https://creditcards.chase.com/cash-back-credit-cards/freedom/student

Discover It Secured Card

https://creditcards.lendingtree.com/credit-card/discover-it-secured

Bank of America® Customized Cash Rewards Secured Credit Card

https://www.bankofamerica.com/credit-cards/products/cash-back-secured-credit-card/

But before applying for any credit card, be sure your student understands the importance of making payments on time and the importance of keeping balances low to protect your credit utilization rate.