Many college students struggle with the problem that they have no credit history and, for many upon graduation, have failed to build a healthy credit score or establish a firm credit history due to the fact that the use of credit cards is sometimes unaffordable. New credit card laws have made it harder for credit card companies to simply hand out student credit cards, seeing as how many college students were able to obtain a credit card with seemingly excellent benefits but found themselves in debt quickly thanks to high interest rates and fees.
However, some parents have been able to either cosign for credit cards that a college student may use or obtain a secured credit card as a way to build a credit history. Secured credit cards are often associated with bad credit borrowers, but they can also be an extra way which someone with no credit history, like a college student, can build an excellent credit score.
Secured credit cards require the deposit of a sum of money into a bank account which sets the credit limit, so a student can use a secured credit card without fear of spending more money than they may be able to repay. Credit limits on many student credit cards are often well beyond the student’s ability to repay and this can cause problems, but a secured credit card is a way which a student can obtain a card that may have a credit limit that will not allow for excessive spending.
While secured credit cards can be affordable and helpful in building a credit history, they are no guarantee to a better credit score. When any card is used, be it an unsecured card or secured credit card, responsibility and smart financial practices will be the only way that the cardholder can benefit from the use of credit. While secured credit cards may be an easier way for college students to access a line of credit and can lead to unsecured credit card offers down the road, this type of card, despite having a bank account associated with it, is not a debit card.
Students who may have financially responsible practices have been able to use a secured credit card by making small, affordable purchases each month and promptly paying them off when their bill is due. Yet, it needs to be understood that the secured account associated with this card will only be used if a student fails to make payments or defaults. What this means is that if a student obtains a secured credit card for the purposes of building a good credit history, failure to pay charges that are made on this card will not only result in the loss of money from the secured bank account but it can also do harm to a credit score which can make one’s financial life more difficult in the future.