First credit card dilemma: Student card vs. secured card

Student card vs. secured card

When it comes to applying for your first credit card as a student, you may find yourself torn between a student card and a secured card. While both types of cards serve the same purpose of allowing you to make purchases and build a credit history, there are some key differences between the two. In this article, we will explore the differences between student cards and secured cards to help you make an informed decision.

A student card is a traditional unsecured credit card that does not require a security deposit. This means that you can get a student card without having to put down any money upfront. However, it’s important to note that student cards usually come with lower credit limits compared to other credit cards. According to Experian data, the average credit limit for Americans is $30,233, while the average college student can expect a much smaller credit limit, typically ranging from $500 to $1,500. Some student cards even offer credit limits as low as $100.

Low credit limits can be challenging because experts recommend keeping your credit utilization under 30%. This means that you should not use more than 30% of your available credit in any one billing cycle. Going over this limit can negatively impact your credit score. To manage your credit utilization, you can charge small amounts to your student card and pay off the bill in full each month.

Student cards come with several benefits. They do not require a security deposit, making them more accessible to students who may not have a lot of money to put down upfront. Additionally, student cards often offer cash back rewards and many do not charge an annual fee. However, in order to qualify for a student card, you may need to have some credit history and prove that you have sufficient income.

On the other hand, a secured card requires a security deposit to open the account. The credit line for a secured card is usually equal to the amount of the security deposit. For example, if you make a $500 security deposit, your credit line will also be $500. The advantage of a secured card is that you have more control over the credit line, as it is determined by your security deposit. Some secured cards may even offer a higher credit limit than the amount of the security deposit.

Secured cards are a good option for those who have the money to make a security deposit. By using a secured card responsibly and paying your bills on time, you can establish a positive payment history and improve your credit score. Some secured cards even have a roadmap for converting to an unsecured card. After a certain period of time, if you have paid your bills in full and on time, the card issuer may offer you an unsecured card and refund your security deposit. It’s important to choose a secured card that offers this conversion option to maximize your chances of graduating to an unsecured card.

However, there are some drawbacks to secured cards. Firstly, you must have sufficient income to qualify for a secured card, despite making a security deposit. Additionally, many secured card issuers charge annual fees, so it’s important to factor in these costs when considering a secured card. Lastly, some secured card issuers run a credit check, which may impact your credit score.

In conclusion, when deciding between a student card and a secured card as your first credit card, it’s important to weigh the potential benefits and drawbacks of each option. A student card offers the advantage of not requiring a security deposit, but comes with lower credit limits. On the other hand, a secured card allows you to control the credit line and offers the potential for conversion to an unsecured card. Whichever option you choose, it’s crucial to make responsible decisions with your card to build a positive credit history and open doors for better cards in the future.

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