Credit cards make our lives easier in many ways. For instance, credit card is an excellent student payment method for purchases and to build credit. But, they need to pay attention to some features to make credit cards work for them.
How credit compares to other payment methods
The 2009 credit card reform law made sweeping changes that dropped this payment method on college students over the last decade. So, many students have turned to debit and mobile payments.
Sallie Mae did research and found that mobile payments have become the most prevalent student payment method. In 2016, 77% of students used mobile payments and 56% used debit cards. In contrast, 86% of college students used mobile payments and 85% used debit cards in 2019.
Probably because this type of user has easier access to debit cards than credit cards. The CARD Act requires an adult co-signer for anyone under 21 or they need to prove that they can repay credit card debt.
Among students who used debit cards in 2019, 94% had cards linked to their checking or saving account, 6% had a prepaid debit card and 11% had both.
The most mobile payments platforms used by college students were Venmo, Apple Pay, Google Pay, Samsung Pay, Square Cash, Bitcoin and others cryptocurrency.
When shopping online, the most used payment method was debit card, chosen by 51% of students respondents, and the second most popular was mobile payments, with 38% of students paying for online purchases that way.
Whether they are likely to qualify for a credit card
Although the CARD Act made credit access more difficult for students, it didn’t eliminate the college market, especially with students interested in building credit. But it wasn’t easy to get them, and college students had to make an effort to do it.
For example, in 2019, 28% of students required a security deposit equal to the credit line to get a secured credit card and 17% reported having a co-signer.
In 2019, the average credit card by college students was five. In contrast, in 2020, 35% of college students had at least two credit cards and 17% had three or more.
While many students apply for credit to build their credit history, some are unaware of their credit scores. In 2019, 24% of students said they didn’t know their FICO score while 19% said they didn’t have one. Plus, many students didn’t know their credit reports in 2019.
The impact of rising APRs
For many college students the first experience with a credit card is a student card. Those types of cards normally have an initial lower credit limit because it was made for people who have little credit history.
However, student cards can offer great perks such as rewards for good grades, cash back and other benefits, and it’s improving. The only problem is that the APRs of student cards rate increased in December 2015, but the Fed’s decision to lower the federal funds to near-zero during the pandemic in 2020 brought student card APRs down a bit.
According to CreditCards.com’s Weekly Rate Report, the average APR for student cards was 16.78% in July 2021.
How to choose the right card?
According to Sallie Mae, in 2019, college students chose credit cards based on their parents or guardian recommendation and others chose because the card offered easiest approval.
Plus, they chose a particular credit card because of the cash back, checking account, rewards points, and improved credit score.
Another interesting thing about students is that they normally choose a credit card based on how their rewards could help them pay down other debts, such as a student loan or a car loan. And, some college students use credit cards to help fund their education costs.
So, the right card is the one that fills all the college student demand, helping them with their problems.
The crushing effect of debt
When we think about the debt concerns with student credit cards, some college students don’t feel comfortable with their money management skills and they prefer don’t use this student payment method.
They worry about the possibility of overspending and going under debt. In 2019, 23% of college students agreed or strongly agreed that their credit card debt was out of control and 22% agreed or strongly agreed that they’ll have some credit card debt for the rest of their lives.
But, not all students consider credit cards a problem and they are more worried about other types of loans. Many students have student loan debt, especially people who attain graduate degrees.
In conclusion, besides the fact that credit cards for students aren’t as easy to get as they used to be, they are still an option for young people looking to build credit and make convenient payments.
But, college students need to be careful paying their balances in full to avoid starting their financial lives with a lot of debt.