Student vs. Secured Card

If you’re applying for your first credit card, you may be faced with the dilemma of choosing between a student card or a secured card. Both cards are designed to help new credit card owners build their credit score. While they are similar in their purpose, there are key differences to consider when choosing one over the other. 

Why is a good credit score important? 

Having a good credit score can significantly improve your quality of life; it can open doors to valuable opportunities such as lower interest rates on loans for school or a car. It can even lead to improved job prospects. Therefore, striving for a higher credit score is extremely important. 

If you have no credit history, it can be tough to be approved for a credit card. Luckily, there are cards on the market designed specifically for new credit card owners. To build your credit history and work your way up to traditional credit cards, your best bet are student credit cards or secured credit cards. 

The process of building a good credit score requires consistent, good financial behavior. Your score is calculated using your credit report, which includes the length of credit history, number of open accounts, types of loans, the total amount of debt, and repayment history. For instance, missing a payment due date can cause your credit score to drop. Those with high credit scores are more likely to form financial relationships with banks, lenders, and creditors because they are seen as trustworthy borrowers. 

Student Credit Cards

Student credit cards are meant for college students who want to establish credit. They are relatively easy to qualify for: you do not have to meet a credit score minimum or carry any credit history. However, you do need to be at least 18 years of age and a full-time or part-time student at a qualifying university. You are also required to provide proof of sufficient income. 

If you want the benefits of a rewards program, student credit cards typically provide more options than secured cards. However, the rewards are limited compared to traditional credit cards; most student credit cards offer 1% cash back on purchases in certain categories. This combined with lower credit limits means that you’re unlikely to rake in hundreds of dollars in cash back or travel rewards. While this may be disappointing for some, the lack of an annual fee – a key feature of student credit cards – can make up for this fact. 

Furthermore, Student credit cards also stand out in that they can offer special benefits for students. For instance, the Deserve EDU Mastercard rewards students with one year of Amazon Prime Student after their first purchase. The Discover it Student Cash Back card offers an annual $20 statement credit to students who have a GPA of 3.0 or higher. 

Card issuers set lower credit limits for students because they are new to credit. Low credit limits ensures that you are not racking up large balances that you might not be able to pay back on time. Additionally, initial lower credit limits replace the need for a security deposit. This feature makes student credit cards ideal for students who are unable to give up a portion of their savings as collateral.

Once you’ve proven you can make your monthly payments on time, some card issuers will automatically increase your credit limit after a couple months. If they don’t automatically increase, you can always ask for a credit limit increase. If you’re a recent graduate, you might also be eligible for a credit increase. Certain Discover student credit cards like Discover it Student Cash Back offer this option. 

Secured Credit Cards 

If you’re not a student and you’d like to build or rebuild credit, a secured credit could be the way to go. Whether or not you need to have credit history will depend on the card issuer. However, you can easily find cards that do not. Besides being more widely available, secured cards tend to charge more fees than student cards. In addition to paying higher interest rates, you may be required to pay an annual fee. 

For those who want a higher credit limit, a secured credit is the better option of the two. Since the credit limit is usually equal to the amount you put down, you essentially control what your credit limit is. The more you put down as collateral, the higher your credit limit will be. As long as you keep up with your monthly payments, the card issuer will refund your deposit in the event you close your account. On the other hand, if you fail to make your monthly bills, the card issuer will keep your deposit. 

Reward programs among secured credit cards are rare, but they do exist. Secured cards that offer rewards could have higher earning potential than student credit cards when paired with a high credit limit. 

How do you choose? 

If you qualify, student credit cards are an overall better choice. Student credit cards generally come with better rewards and offer additional rewards for academic achievements. Many don’t charge an annual fee, and don’t require you to put down a security deposit. However, if you’re no longer in school, have damaged credit, or want to finance large purchases, a secured credit card is a great alternative. 

Despite their differences, both types of cards are ultimately designed to help you jump-start your credit history. A good credit score will unlock benefits that you otherwise would not have access to and solidify your financial future. Therefore, make it your goal to use your card responsibly by spending within your credit limit and paying your bills on time. Doing so will allow you to upgrade to credit cards with even more lucrative rewards and perks.