If you have filled out an application for a credit card, you’d you know that one of the mandatory fields is ‘annual income’. Other than your credit profile, this is the single most important factor that creditors use to determine your eligibility for credit. But what if you’re going to school and not making any money? You still have money from your bank accounts or from family, but you don’t have a regular income. No worries: financial institutions will take care of that for you. Many creditors offer a student version of their cards, which is just about as good as the regular version.
Option 4 for credit builders: student credit cards
Student credit cards are one notch up from secured credit cards in terms of credibility: they are reported to the CRA’s as regular credit cards, an advantage over secured credit cards. Normally a student card is the duplicate of a normal card with the exceptions of a low credit limit, usually south of $1,000, and a high interest rate (APR). Discover offers the Student IT card https://www.discover.com/credit-cards/student/index.html?ICMPGN=HDR_ALLPS_CC_STUD_IT
Compare this to the normal Discover IT Card: https://www.discover.com/credit-cards/?ICMPGN=HDR_ALLPS_CC_IT
They have the almost exact same features and offer the same benefits. The only noticeable difference is the lower APR that the regular card offers.
For another example, take the Citi Dividend:
The differences lie in the introductory offers and the rates.
In both cases, the creditors do not specify that the student versions will suffer lower credit limits since even the regular cards can have very low limits if the credit application is weak. Some student cards actually have very high limits of the creditors somehow figure out that the student under review has high earning potentials, for example if she goes to Harvard, or her father is a millionaire who has banking and investment accounts with them. That said, in most cases the credit limits will be low, which is the reason I favor secured credit cards.
Note that you don’t necessarily have zero income as a student; if your permanent address is your parents’ house, you can legitimately fill in the annual household income. This applies to non-students as well. As long as you’re sharing residence with family members, you should declare annual household income. I don’t advocate adding the income of non-family roommates, though I’m not sure if that practice is technically legal.
The obvious limit of a student card is that you often need to be in college or grad school to qualify though you don’t have to be a full-time student: half-time students will qualify as well. I have friends who started grad school right after college, and for them this is a good option for building credit. A student credit card is an especially attractive option if you’re in school and don’t have much in your checking account to make a deposit for a secured card.
This is the end of the 4-part series on credit cards for credit builders. I hope you enjoyed reading the blog posts and was able to find your ideal starter card. If you have a question or concern about a particular issue or product, please feel free to send it my way or leave it in a comment.
In subsequent posts in the ‘Credit card selection’ category, I will cover credit cards for the credit-experienced.