What are Student Credit Cards?

Student credit cards are credit cards designed for young adults in college. These are often a first credit card, designed to help build new credit from the ground up. They are a useful tool to teach college students about finances and money management while giving them more freedom to make necessary purchases and live on their own.

Student credit cards are offered through banks, credit unions, and colleges. It is also possible to get a student credit card directly from the credit card company. These student cards usually have a fairly low limit, generally around $250 US Dollars (USD) or $500 (USD), up to about $1,000 USD. Student credit cards almost always have a high interest rate, which should encourage college students to pay off the credit card every month.

As with any credit card, it is important to pay the bills on time and always pay more than the minimum payment required. Student credit cards will start to build good credit, but only if the finances are managed responsibly. Some of these credit cards for students offer cashback bonuses or points that can be redeemed for merchandise. Others offer a lower interest rate or some other type of bonus for skills specific to students, such as getting good grades or consistently paying the bills on time.

Student credit cards are a great way to help students manage their college finances. These cards might be used to pay for books in the bookstore, gas and groceries, clothing or even fun items. If made to pay their own bills, college students will quickly learn the dangers of overspending and recognize the difference between needs and wants. Student credit cards also help students learn important lessons about finance charges, fees, and annual percentage rates.

Some student credit cards require a co-signer, which is usually a parent or caregiver. Be cautious when co-signing on a credit card, as any late payments can negatively affect your credit score as well. It is certainly possible to find a student credit card that does not require a co-signer. College credit cards also do not usually require an application fee, minimum income amount or a yearly fee, and are generally pretty easy to obtain.

After the student graduates from school, he or she can usually convert the student credit card into a traditional credit card with a higher limit. Even if this option is not available, he or she will be able to apply for a traditional credit card because they will now have a credit history. Acquiring a student credit card is a great first step for the future.

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How Can I Get the Best Credit Card?

Getting the best credit card is often a function of both your credit rating and timing. Put the two together and chances are good that a great card at a reasonable rate will result. Like any other type of credit, good credit or debt management needs to be at the cornerstone of this fiscal endeavor, even with the best credit card.

One of the things that affects getting the best credit card is a past payment history, especially with credit cards, but also with other forms of credit. For those who have a history of making payments on time, every time, getting a great deal is usually not that hard. For those who are not able to meet their obligations in a timely manner, it may be a little bit harder.

One of the hallmarks of a good credit card is a no-fee credit card. Credit cards are already a lucrative deal for the banks involved. Therefore, there are plenty of banks willing to offer you a card with no annual fee, as long as you are not a high credit risk. Shopping around for a card with no annual fee should be simple and there should be plenty of options.

Those looking to rebuild their credit may find that the best credit card they can acquire will have an annual fee. Even in these situations, the annual fee should not be for more than $100 US Dollars (USD). Most of the time, if your credit is strong enough to the point you can acquire a credit card, finding one with a fee for less than this amount should not be a major hassle.

Some credit cards offer low introductory period rates or low interest rates for balance transfers from other cards. While these can be good deals, each situation needs to be evaluated independently. Reading the fine print can be very important and it is necessary to fully understand all the details of such offers, because they may include language not to the borrower's advantage.

Others believe that simple interest terms and the grace period is not what makes for the best credit card. Rather, the best credit card for them is one that comes with credit card rewards. Indeed, because they are so lucrative, many banks are more than willing to offer additional incentives to keep you using that card for a long time into the future.

There are often many options when it comes to choosing a credit card with rewards. The best credit card for you may be one that comes with substantial air miles, for those who like to travel extensively. Others may offer a cash back reward feature, which is attractive to those who use the grace period to pay off their credit card debts every month. This means there will be no interest charged and the card company actually pays you for using it.

No matter what your interests, getting the best credit card does not depend on reviews or what your friends have. Rather, you should choose a credit card for your needs and your needs alone. Credit card rewards are great, but if they are used or cause you to go into unnecessary debt, then they would not be the choice for you.

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What are Bank Credit Cards?

A bank credit card is a card issued by a bank. The card can access different funding resources, depending upon type. One common definition of bank credit card is the ATM check card, but there are various additional descriptions of bank credit cards.

In the case of ATM check cards, people can use these very much like credit cards, making purchases at any location that accepts them. These cards are usually given to those who open checking and/or saving accounts. However instead of drawing on credit for funding, they draw on the person’s designated bank account.

There can be some pitfalls to using bank credit cards that are check cards. Sometimes certain companies will not accept them to guarantee reservations of rentals. For instance, you may need an actual credit card attached to a line of credit to rent a car or reserve a hotel room. It really does depend on the individual company. However, if a company places a hold on a bank account to guarantee a rental, it can tie up access to this money until the hold is removed. This could bounce checks, if money in the account is low.

Bank credit cards can also simply mean ATM cards that don’t have a credit card symbol on the back, though these are becoming less common. They’re not often issued anymore, since many people want to be able to use their ATM cards for things like online purchases.

Some people specifically think of bank credit cards as credit cards. In this case they are issued by any bank, and they access available credit. People may see these cards as only coming from banking chains like Bank of America®, which offers additional personal banking services on a large scale. In actuality, any credit card issued by any bank fits would be a bank credit card.

Another definition of bank credit cards can apply to cards issued to people who have a line of credit at the place where they do the majority of their banking business. Large or small banks often want to loan money to customers with impeccable credit ratings. Sometimes these cards allow the bank to draw on available credit if a bank overdraft occurs, though this practice can involve fines or fees.

People often are curious as to whether getting bank credit cards from the banks where they have checking and savings accounts are better deals. This can really depend upon the interest rate offered and any additional terms and conditions of issuing credit. Sometimes bank credit cards offer the best interest rates, but on other occasions, people can find better rates by shopping around for a credit card.

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What are Prepaid Credit Cards?

Many people are rejected after filling out a credit card application because of poor credit. The problem with this is that a major credit card is needed to make reservations for hotels, motels, car rentals and airline flights. Credit cards are also necessary when placing orders online or over the phone. Does this mean a person with bad credit can't do any of these things? Not if that person has a prepaid credit card.

A prepaid credit card account is opened by depositing money into that account, much in the same way you would make a deposit to open a checking or savings account. Once you have money in your account, you're issued a prepaid credit card that can be used anywhere one would use a regular credit card. The best part of the prepaid credit card is that you can charge to your heart's content and you won't be in debt. The money is yours and once it's gone, you can't spend any more until you make another deposit. There are no bills and no interest charges. It's the same principle as using a debit card linked to a savings or checking account.

So what's the catch? First, you'll have to pay a fee to set up your account. The amount varies, but you can probably expect to pay about US$5 to $10 to open a prepaid credit card account. In addition, you'll have to pay additional fees every time you deposit more cash into your prepaid credit card account. For those with bad credit, the benefits of a prepaid credit card far outweigh the risks. They're able to reserve rental cars or hotel rooms, and don't have to worry about credit card bills and interest payments later.

Those who are planning to use the prepaid credit card to pay for a monthly Internet subscription, or to purchase an item where a fixed amount is deducted from their card each month, might be dismayed to learn that this might not be possible. Many of these businesses don't want to do business with a prepaid credit card because there's always the risk that there won't be any money in the account when it comes time to pay the bill.

If you're frustrated because a credit card is necessary to get by in today's world, but can't apply for one because of bad credit, you might consider a prepaid credit card. You'll have most of the advantages of a credit card, and you won't have to worry about interest charges. Sounds like a prepaid credit card is a pretty good deal.

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What is a Credit Card Balance Transfer?

Opening a new credit card may seem like the last smart thing to do when faced with mounting credit card debt. In one case, however, this may make sense and wind up saving you a lot of money as well. This special exception is a credit card balance transfer, and is oftentimes available to anyone with a mailbox and social security number.

Credit cards are a big business today, with many companies making a fortune off finance charges. The average annual percentage rate is about 16% on most credit cards. With that kind of interest, it's tough to pay down a credit card, because it is consistently charging interest and adding to the principle. Even hot stocks are pressed to grow at 16% a year. Luckily, companies are so anxious for your business the balance transfer was invented.

In an effort to lure consumers to their credit card, many companies offer free balance transfers from your old credit card. Once the money is safely owed to the new company, they will often provide a grace period where they charge far less on the transferred balance. Finding two, one, or even zero percent interest is possible. Oftentimes this introductory rate lasts for around six months to a year after the balance transfer takes place.

For a savvy consumer, this can be an excellent method of reducing credit card debt. It leaves the person free to pay down the balance on a credit card without incurring interest charges. Using this strategy, a person could potentially open a new account that offers a balance transfer when the old one expires. Then transfer all of the balance to the new card to begin a new grace period of low or non-existent finance charges. If you plan to do a balance transfer, be sure to close your old account.

Making a balance transfer work for you is an excellent practice, but diligence is required. Sometimes there is fine print attached with hidden charges. Some banks may charge a transfer fee that can be a percentage of the balance transferred. Be sure that there is a cap on the amount, like fifty or seventy-five dollars, or else a balance transfer in the thousands may end up costing a couple hundred dollars. Also, be sure the bank doesn't charge a high annual fee, or joining fee. The credit card companies are already getting your business, so don't let them take the upper hand in a balance transfer.

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The Death of the Credit Card Economy

The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a "borrow and buy" economy to the "cash and carry" model of our grandparents.

The Olesons may have extended store credit to Ma and Pa Ingalls in Little House on the Prairie, but widespread consumer credit is a very recent phenomenon. It began in the 1920s, when expensive consumer durables—cars, refrigerators—were first produced in mass quantities. It wasn't until Bank of America began carpet-bombing California with credit-card applications in the 1960s that the debt wave started in earnest.

In the decades since, consumer credit became so pervasive that paying cash became passé. Want a new $32,530 Dodge Ram Crew pickup? Take a lease. Sick of your old house? Get a 100 percent mortgage and trade up. Face lift? Round-the-world cruise? New PC? Three-hundred dollar sushi dinner at Nobu? Whip out that plastic. It was this behavior—the endless willingness of lenders to lend and borrowers to borrow—that kept the consumer economy humming uninterrupted from the early 1990s, straight through the brief recession of 2001, until the credit meltdown of 2007.

But many of the lenders who extended credit recklessly are now acting like a single twentysomething who, after having a few bad dates, takes a vow of celibacy. Students returning to college are finding that student loans have vanished. Retailers who freely extended credit to any customer with a pulse are deploying bean counters armed with sophisticated software to sniff out potential deadbeats. And when higher rates and fees don't deter their borrowers, credit-card companies resort to slashing credit lines. "We predicted there would be some degree of spillover from the mortgage meltdown," said Curtis Arnold, founder of CardRatings.com. "But the credit line reductions by big credit card companies in the last six months have been fairly unprecedented."

This shock to the system may further damage the already-fragile psychology of the consumer. Writing a check or deducting the price of a pair of shoes directly from your bank account packs a much more potent emotional punch than charging the pair of Allen Edmonds loafers on your American Express platinum card. Chalk it up to a concept called "the pain of paying," said Dan Ariely, the author of Predictably Irrational. (It's a concept the parents of his students at Duke University feel every semester.) Imagine that a restaurant, rather than charging $30 per meal, charged 50 cents per bite, with a waiter standing tableside collecting after each chomp. That would be an extremely unpleasant meal. But credit puts a safe distance between the ecstasy of consumption and the agony of payment, and thus makes us feel better. Said Ariely: "If it's more difficult to get credit, it might make people feel more pain of paying and therefore spend less."

The availability of credit also changes the calculus people use to determine what they can afford. Blowing $6,000 on a week in Tuscany might be tough to swing if you have to pay for it all next month. Convince yourself it's a once-in-a-lifetime experience that you can pay for over three years, and it becomes a bargain. With credit, Saturday night means dinner and a movie. When you pay cash and have a fixed budget, it's dinner or a movie.

The tightening of credit is forcing more people to confront these uncomfortable choices. In the second quarter, credit giant MasterCard reported that the gross dollar volume, or GDV, of credit charges processed in the United States rose just 0.7 percent from 2007, while the GDV of debit charges rose 15.8 percent. The huge retailer Target in late August said that in the second quarter, for the first time in memory, the percentage of sales charged to credit cards fell, while the proportion of purchases made with debit cards rose. That's partially by design, since the company has undertaken an "aggressive reduction of credit lines and significant tightening of all aspects of our underwriting." (Translation: No credit for you!!)

Leverage is an appropriate synonym for credit because it allows you to lift more than you could with simply your own financial muscle. Take away the leverage, and the power lifter becomes a 98-pound weakling. That's clearly a factor in the housing market. In 2007, according to the National Association of Realtors, 45 percent of first-time homebuyers put no money down, and the median first-time homebuyer financed a massive 98 percent of the purchase. But no-money-down mortgages, like Rudy Giuliani's presidential candidacy, began fading in late 2007 and largely disappeared in the cruel winter of 2008. No wonder existing home sales fell 13.2 percent in July from last year while new home sales plummeted 35.3 percent.

In effect, the lack of credit makes things seem more expensive to consumers, even if prices are holding steady. And in a world of scarce credit, consumption is likely to resemble a meal at Dan Ariely's nightmare restaurant: a series of small bites rather than an all-you-can-eat extravaganza.

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Credit-Card Use Is Surging

Cash-strapped Americans are ringing up more and more purchases on their credit and debit cards, and there could be a steep price to pay ahead.

Though the trend is a boon for the companies that issue the cards, analysts worry that there could be long-term problems not only for consumers but also for the anemic economy and the already-troubled banks that will be underwriting all that risky debt.

"Right now what we're seeing is the US consumer losing their disposable income as they have to spend more and more on necessities because of higher prices for gas and food," says Ron Ianieri, a market strategist and co-founder of the Options University investor education center. "Normally when you have a certain budget and you can't keep up with the budget one of the easy steps is to extend that budget using credit."

One of the main problems with that is US consumers—and their counterparts in Europe as well—already are delinquent on their credit card payments in numbers not seen in six years. The Federal Reserve last week said credit card delinquencies hit 4.86 percent in the first quarter in 2008, while revolving debt—or the type used in credit purchases—hit $957.2 billion in March, a 7.9 percent increase.

As all that risky, high-interest debt keeps accumulating, consumers will find themselves deeper in a hole that threatens to keep the economy in its sluggish state. Economists worry that the problems are being exacerbated by consumers using credit not only to buy big-screen TVs and patio furniture, but also to pay their mortgages and shop for groceries.

"There's a significant risk to people who are using credit cards to help them try to bridge the gaps that they're facing," says Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. "The reality is the economic picture isn't going to clear up instantaneously."

Meanwhile, the banks that underwrite the credit card debt stand to lose as the delinquencies continue to rise. Standard & Poor's on Monday issued a dour forecast for banks in 2008, in part because of their exposure to bad debt.

Ianieri ranks his "starting five" in terms of exposure to risky debt: Lehman Brothers [LEH 0.0395 --- UNCH (0) ], Citigroup [C 8.54 0.07 (+0.83%) ], Bank of America [BAC 16.95 -0.89 (-4.99%) ], UBS [UBS 12.92 -0.71 (-5.21%) ] and Merrill Lynch [MER 14.50 -0.75 (-4.92%) ].

"It's a disaster, it's a time bomb," Ianieri says. "The credit crisis is a lot more severe than it's being made out to be. I think the government is doing everything it can to keep the severity of this situation under wraps from the general population. I think they're just trying to bide time for these banks."

For the credit card companies, though, it's a different story.

Little to Lose

Visa and Mastercard back comparatively little of the credit actually issued through their cards, meaning they have a low level of risk for defaults and other payment issues. They get paid a fee each time someone uses their cards, and the banks that issue the cards assume responsibility for the debt.

As such, investors and analysts are fawning over the two companies in the face of consumer cash issues and the growth of emerging markets, where credit cards are only beginning to find popularity.

"The reality is probably some of it is hype, but some is based on fact," Snaith says. "'Check or cash' has been replaced by 'debit or credit' and that's going to be a continuing trend not just in the US but spreading worldwide."

In a note issued last Thursday, Lehman Brothers raised its outlook on Mastercard, escalating its price target to $335 from $300. Other analysts have joined in the enthusiasm, with Stifel Nicolaus on Tuesday jacking up its price target from $312 to $367.

Visa has gained from the enthusiasm for Mastercard. As of noontime trade Tuesday, both Visa [V 53.53 -2.63 (-4.68%) ] and Mastercard [MA 143.21 -4.09 (-2.78%) ] were up more than 12 percent since May 23.

"They have no risk. It's per transaction," says Nadav Baum, managing director of investments at BPU Investment Management. "That's why Visa and Mastercard are bucking the trend when it comes to the other financial companies. Even though they group them as a financial company, they're really not."

Lehman analyst Bruce Harting, in his research note on Mastercard, pointed out that the company believes it can duplicate its US business model in countries including Brazil, Hungary, Poland, Russia, India and China, nations where it projects 39 percent revenue growth.

Similarly, Americans shopping abroad might be more inclined to use their plastic as the dollar begins to gain ground against other currencies. A purchase in euros now could cost fewer dollars by the time the next monthly bill rolls around if the US currency continues to appreciate.

"That's another reason why Mastercard and Visa will continue to do well," Baum says. "It's all hand-in-hand."

Finally, there are the responsible consumers who pay their bills in full every month and are joining the legions of people who no longer want to carry cash. They enjoy taking advantage of the rapid growth of retailers and restaurants offering debit options, plus using points they can accumulate by utilizing their cards.

"The danger is in painting with a broad brush and casting all consumers as reluctant or unable to spend," says Greg McBride, senior analyst at Bankrate.com. "There are a lot of consumers that are not in the state of distress and can continue to spend in a manner that's not very different than a year or two ago when the economy was stronger. The card-holders that pay their balance in full every month, the incentive is for them to use the cards as much as possible."
© 2008 CNBC.com

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