There are two types of cards that students can choose to help them with their schooling- prepaid debit cards and student credit cards. Which of these two cards should you choose? What are their differences and how should they affect your choice? Understanding the basic points about these two credit card options can help you come up with an informed decision. Here’s what you should know.
The Unsecured Student Credit Cards
An unsecured student credit card works like any regular credit card. The student is given a credit line which means he can charge expenses on his card as long as he doesn’t exceed this limit. Most student credit cards give a $500 credit limit while others give as much as $1,000 credit line. Since this their first time applying for a credit card, the credit limit given to students are often lower than those allotted to long time credit card holders.
Nevertheless, getting a student credit card is a good way to start building your own credit history while still in school. In fact, being in a college is the only time you can apply for an unsecured credit card without difficulty. Once you’ve graduate, lenders and credit card companies would often require a good credit history to approve your application.
Although not all student credit cards give a low credit limit, this restriction can work to your advantage. By sticking with a low credit line, you also avoid the risk of incurring very large debts on your account. Remember, as a credit card holder, you should do your best not to exceed beyond 50% of your allotted credit.
The Student Prepaid Debit Cards
Now let’s talk about the student prepaid debit card. It may look like a credit card and it can actually be used to pay for your purchases just like a credit card but it is different in some ways. How? Instead of a line of credit, you’ll need to deposit money in your account first in order to use the card. If you don’t have existing funds in your debit account, you won’t be able to use the card for payments.
Some parents prefer to give their college student a prepaid debit card instead of a credit card to avoid the risk of uncontrolled spending. There are prepaid debit cards today that do report to the credit bureaus, so you can still build your credit history using these cards.
However, the disadvantage about prepaid debit cards are the costs that comes with it. For instance, each time you use your debit card for payment, you are charged with a transaction fee. Aside from this, you’re expected to pay an annual fee to keep your card active. However, if you do your research well, you can find debit cards with reasonable costs and charges.
Which is Best?
Being a credit card holder comes with the responsibility of submitting your monthly payment on time. While a debit card frees you from this obligation, it does have its limitations. For instance, you may not be able to use your prepaid debit card on an emergency if you didn’t place funds in your account. Thus, making the choice is up to you.
If you do decide that you prefer a prepaid debit card over a student credit card, make sure that your debit card issuer will report your payments to credit reporting agencies otherwise you won’t be building your credit history at all.
On the other hand, if you choose a student credit card, see to it that you are up to the challenge of keeping up with your payments. Don’t forget that establishing a credit history alone isn’t enough. Instead, you should strive to build an excellent credit and keep it that way.
About the Author
Tara Tiemann is a credit analyst for Go-prepaid.com which has been a resource site for people who want to live debt free. If you are on a budget using prepaid debit cards, pre paid credit cards and prepaid cell phone service can save you big money!