Student Credit Card Overview

Ideally, a college student’s credit card is a step in their financial education following upon experience with an allowance and a savings account, if not a checking account. If the student has had work experience, she or he may also have had experience budgeting expenses, and if she or he has had a car, possibly experience with monthly expenses. All of this background, and more, will come into play as a college student has his or her first credit card experience. This article treats the general issues involved in college student credit card use.

Because most students turn eighteen right around the time they leave for college, they may not have much financial experience, and because the variety of financial tools have blossomed recently, let’s first begin by defining credit cards and placing them in context.

It’s easier to understand a credit card when one differentiates it from a charge card. A charge card is a way of delaying a payment that is due. With a charge card, the consumer’s payment to the merchant is delayed for a set period, during which the issuer pays the merchant. Upon a certain date, the consumer’s spending over the period all becomes due, with no rollover. So every month, the consumer may or may not have charges, but if he or she does, they are fully due upon the issuance of the statement.

A credit card, by contrast, is a system through which the issuer makes a loan to the consumer. Upon the consumer authorizing a purchase, the issuer pays the merchant on the consumer’s behalf. When the period is up, the issuer sends that consumer a record and indicates a minimum payment. The consumer may elect to pay the minimum or any greater amount, up to and including the entire account balance.

Both types of cards come in many flavors, but one of the most important distinctions is those that are good for only one merchant, and those that can be used with multiple merchants. Gas cards and department store cards are examples of the former. Visa and MasterCard are examples of the latter.

In terms of history, charge cards developed first. Proprietary charge cards from gas companies and department stores were introduced in the early twentieth century. Bank cards were introduced in 1946, and the Diners Club Card, the first card to gain more popularity, was developed in 1950, with American Express responding with its card in 1958, the same year that BankAmericard program - the forerunner of VISA - got its start. The national credit card system that is now MasterCard got its start in 1966 with the joining of a group of banks into the InterBank Card Association. Discover entered the business in 1986, and American Express began offering a credit card as well as a charge card in 1987. These four - VISA, Mastercard, American Express, and Discover - are the top card networks in the industry.

Students and their families should carefully consider the options, because - as with other areas - financial maturity comes at different times for different people. There are alternatives that may serve a student well for various needs. For example, the ability to pay for online purchases easily can be met through alternatives such as a PayPal account. A debit card can enable a student to avoid carrying large amounts of cash. An ATM can provide cash on the spot from one’s bank account for unexpected expenses. With alternatives like these available as an alternative to cash, families may be able to afford to wait, if appropriate, and help their college student ease into the world of credit when she or he is a bit farther along.

However, used carefully, credit card provide some worthwhile benefits. Besides streamlining of one’s financial transactions, having a credit card can provide some perks, and - used wisely - begins to build a credit rating that can be very helpful for the years to come. See "The Benefits of a Student Credit Card" and "Building Good Credit as a Student" for more information.

There are many opportunities for credit cards, and college students are a specially targeted audience for credit card companies’ offers. "Choosing the Right Student Credit Card for You" is an article to assist in making the decision about what type of card to select from the many that are available.

If a credit card is what you want and need, there is an application process to go through as well as some new vocabulary to acquire. "Student Credit Cards 101" goes into more detail about the process of obtaining a credit card.

For a student mature enough to handle it, the years spent in college can be a good time of their life to get their first credit card. But they should be aware that trying to build credit and manage debt is a balancing act. Students need to use their card, but also develop the discipline to limit their spending and the responsibility to clear off the balance quickly. The article "Managing Your Credit Card Balance" will help them in this regard.

Keeping track of one’s balance is not the only monitoring that is important. Credit card holders need to watch out in other ways, such as charges for purchases they didn’t make, or for goods or services that were faulty. "College Student Credit Card Tips" and "How to Dispute Your Credit Card Bill" are articles to help clue you in on some of the strategies that will make things flow smoothly.