Top Credit Cards for College Students

One of the major components of a credit score is how long you've had a credit account; in the past, students often piggy-backed onto their parent's accounts, but recent changes to the formula require that individuals be the primary account holder. As a result, having a credit card as a college student can be not just a convenience and a valuable way to learn how to manage your money, but also is necessary to establish your credit and make it easier to rent apartments, buy your first car and so forth after college.

Before you start looking at which card is best, a few basics about credit cards. While it goes without saying that paying off your credit cards each month is a necessity to avoid debt and maintain the good credit score you're trying to establish, 80% of undergraduates do not do this and leave college with a few thousand dollars of debt. (For more figures, see Nellie Mae's most recent survey on Undergraduate Students and Credit Card usage given in 2004.)

A college student with no credit should not have to pay an annual fee, but will likely have a high APR. You should pay attention to this number because even if you plan to pay off the bill each month, you may slip up; so long as you pay it off the next month, don't worry. Credit cards, though, don't make money just on lending you money, but through late fees and 'over the limit' fees. As a student with a new account, you'll probably have a pretty low credit limit; that's a good thing since it probably corresponds to your bank account. (And mine...) However, the cards won't stop you from spending over that amount -- they'll just tack the charge on. So, monitor your spending.

Also, late fees can be easily avoided if you set up a monthly payment plan. You can either set one up to pay the minimum (thus protecting you from the possible overdraft fee, which then triggers a missed credit card fee...) or the full amount each month. By doing this, you insure that you never miss a payment and don't have to worry constantly about your monthly bill. If you set the card up to pay the minimum every month, you can also avoid the tricky due dates most credit cards employ -- the date changes each month. If the minimum is paid every month automatically, you can pay the full balance every month on a set day (the 15th) and won't have to worry about forgetting a payment, or only paying some of your bill.

Here's a selection of cards that will provide a good fit depending on what you're looking to get out of them. There are three major companies which offer student credit cards: CapitalOne, Citibank and Discover. Each of these has a number of cards to choose from, allowing you to choose a card that best matches your spending habits -- great both for racking up rewards and spending them.

Capital One Options

Capital One's Student card ("Capital One No Hassle Cash Rewards for Students") gives you 1% cash back on purchases that you make -- and there's no limit on the cash back. In addition, they'll give you discounts when you shop through their portal, a limited time 0% APR on purchases and a 25% annual bonus on your reward. So if you spent $2000, earned a $20 reward they will give you an additional $5 at the end of the year. The catch is an annual fee ($29), though the variable APR is 16.4%. Should you get it? If you like cash back, consider both your spending habits and what sort of limit they'll give you. A $200 credit limit means you won't be able to spend enough money to get a reward that will pay for the annual fee.

Capital One's best feature is their "CardLab" where you can build your own card -- even if you are a student and have a limited history. Here, you set up what APR you want, rewards you're interested in and even a cool design. Should you get one? When you start plugging the numbers in, you find that because you're a student, your options are more limited. You can get a decent APR (15-16% range) and points back, but you'll have to pay a minimum fee. Their student cards are a better bet -- but keep it in mind for your next card.

Capital One has a number of cards targeted for students, but they also have a separate category for people who have little credit history, or ones that need improvement: CapitalOne Platinum. These do not come with rewards, but do offer you the standard benefits of a card: credit history, $0 liability for unauthorized purchases, a low interest rate (8.4% after the introductory 0% for 6 months), roadside assistance, travel insurance, etc. They also have lower credit limits (from $300-3000). Should you get one? If you want to see whether you can manage a card this might be for you. But it does carry a $39 annual fee and you can do better. But if you don't think you'll pay the balance off regularly, the APR can't be beat.

CitiCard Options

CitiCard offers 4 credit cards to students, giving you a wide range of choices. Their basic platinum card comes in two varieties: the basic card (0% introductory APR for 6 months, 12.5% variable APR, no annual fee, no rewards) and the Dividend Platinum Select (5% cash back at select stores for 6 months and 2% afterwards; $300 reward limit; 14.5% variable APR; no annual fee.) Both of these are available as Visa or MasterCards, but really that's a personal choice. Should you get one? The dividend card is worth looking at if you want cash back and you probably wouldn't spend enough money to go beyond the $300 limit. They do have options that will give you better rewards, though.

CitiCard offers an additional card, affiliated with MTV, called the "Citi mtvU Platinum Select Visa Card" which earns ThankYou points (Citi's rewards program which gives you gift certificates -- $100 for 10,000 points --, airline tickets -- domestic ticket for 25,000 points --, and even iPods, charitable contributions or statement credits). It rewards you both for good behavior (good GPA, paying your bill on time) and for going places college students go (bookstores, movie theaters, etc) as well as all your purchases. They also have special discounts with particular popular stores and specials coordinated with MTV. There's no annual fee, has a 14.49% variable APR, and a 0% APR for the first 6 months on transfers and purchases. Should you get one? This is the best student card out there. It gives you a chance to earn real rewards and also rewards you for the things you should be doing anyway (like paying your bill on time). In addition, their rewards program is consistently one of the top rated in the business.

CitiCard's other student card is called the "Driver's Edge" and has no annual fee, but a higher APR (16.49% variable). It comes with the ubiquitous 0% APR on purchases and balance transfers for the first 6 months. The main attraction is it gives you a 3% rebate on certain purchases and a 1% rebate on all purchases. Should you get it? If you're commuting and living off-campus this is a fine card, but think about where you shop most frequently -- the extra rebate probably isn't worth it unless you're spending quite a bit of money a month on basic necessities. But if you buy groceries for all your roommates, this is the card to get!

Discover Card Options

All Discover credit cards include Cashback Bonuses, which can total up to 20% of the amount of money you spend. To get these, you'll need to shop through their portal, which just adds an additional step to your browsing. Their student card offers the following features: popular purchases (i.e. gas, groceries, etc -- these usually rotate) earn 5% cashback bonus, every purchase earns a minimum of 1% cashback and the online purchases range from 5-20% for select online purchases. The APR is 16.99% (variable), after the introductory 0% for 6 months. The cashback bonus must be redeemed in increments of $20 and their FAQs do not say whether there is a yearly maximum so ask. Should you get it? Check out their list of online retailers first; if you don't shop there, or don't own a car their extra percentages will be useless. At the base 1% rate, you have to spend $2000 before you get the $20 payout.

If you commute by car frequently, they have a special "Open Road" card that rewards with 5% cashback bonus on gas and auto maintenance. The variable APR is 16.99% with a 6 month 0% APR rate if you have a big car repair coming up that you need to pay off slowly. Should you get it? Only if you're going to spend a significant amount of money on your car...and nothing else.

In short, students have more options than ever before as credit card companies realize they can make money off of you. If you're careful, you can work the rewards to your favor and never pay a cent in interest. Regardless, pay careful attention to how you spend your money. And try to save a little too.