Kevin Hunt: Best Credit Cards, Checking Accounts For College Students


Debit or credit?

It's not much of a choice for college students because the CARD Act has made it difficult, since 2010, for anyone under 21 years old to get a credit card. To qualify, the under-21s must demonstrate sufficient income or assets to cover the debt obligation unless they use a co-signer such as a parent or guardian.

"An 18-year-old can't get a credit card with a $1,000 credit limit anymore but they can obligate themselves to five figures of student-loan debt," says John Ulzheimer, a blogger at CreditSesame.com. "It seems incredibly counterintuitive."

A debit card linked to a parents' account is a preferred payment method by college students. But it does little for the student's money-managing skills and nothing for establishing a credit history. A bad credit score or no credit history can push loan rates and insurance premiums higher, even affect an application for cable television or phone service. In America, debt validates a consumer as long as there's a responsible payment history.

By the time college students graduate, they know too much about debt. But they don't know enough about the financial facts of life.

The Credit Card

How well do parents know their child? Just make the incoming college freshman an authorized user on their credit-card account and they'll find out.

"The authorized user," says Ulzheimer, "essentially is a credit card with training wheels. The student has full spending capabilities yet has no liability for the debt. It's a little bit dangerous for the parents, because if you have an irresponsible kid they can really bury the parent pretty quickly."

Responsible use of a parents' card helps the student build good credit. For students interested in opening their own credit-card account and building (or rebuilding) their credit history, CardHub.com recommends the cards listed below.

Credit-card companies interpret a student's asssets differently: scholarship money, a grant and even student loans can be classified as "income" when determining if an under-21 can pay monthly debts. You don't necessarily need a part-time job to qualify.

Best overall:

>> Citi Forward Card for College Students: A Visa card with no annual fee (and no co-signer required), five points for every $1 spent at restaurants (and, college students, that includes fast-food restaurants) and bookstores and on entertainment. It also gives one point for every $1 spent anywhere else. A 0 percent interest rate lasts for the first seven months, then increases to at least 13.99 percent and as high as 23.99 percent. If those interest rates aren't enough incentive to pay off your balance each month, look for a secured card or stick with a parent's debit card.

Bad Credit:

>> Capital One Secured MasterCard: For students left with bad credit after an unpaid bill or other debt.

A secured card is temptation-proof because users can't spend what they don't have, as they can with a credit card. A secured card's limit is the amount of money the user has deposited into the account. These cards are often last resorts for bad-credit consumers looking to build a credit history. Fees are often ridiculous, but Capital One charges only $29 annually for this one.

No Credit:

>> Journey Student Rewards: This Visa card from Capital One has no annual fee, 1 percent cash back on all purchases and a 25 percent bonus each month the bill is paid on time. Users have access each month to their credit score, an interactive tool that monitors their credit and text/email alerts designed to keep users on their budget.

Checking Account

Checkbooks are out. Checking accounts aren't.

"The days of an 18-year-old traversing campus with a checkbook seems really 1986 to me," says Ulzheimer. "But a checking account is still a pretty strong base of operations because you have a debit card that plays off of it."

For self-sufficient students who want their own checking accounts, find the lowest monthly fees at a bank near the school by inserting your ZIP code into a NerdWallet.com search engine. A search in Storrs/Mansfield, home of the University of Connecticut, found a no-fee TD Student account at the TD Bank in Mansfield with no minimum initial deposit or daily balance.

Alternative: Visit the nearest credit union or community bank.

Savings

With student loans and daily expenses, it's hard for college students to consider savings. That's what summers are for: Work a lot, save a little. Then invest. It's that simple.

"I don't think I've heard of any college offering a course, whether required or elective," says Ulzheimer, "that does anything to teach kids about wealth-building. That's unfortunate, because things like summer jobs could be a great place to stick money into a SEP IRA if they're self-employed or a Roth IRA or a traditional IRA or any sort of interest-bearing account.

Example: A one-time, $1,000 deposit into a Roth IRA with an 8 percent average annual return — the S&P 500 Index has averaged a 7.86 percent return the past decade — becomes $2,158.95 in 10 years. Once you turn 59.5, withdrawals are tax-free.

Committing to a lifetime of savings could be the most important thing a college student learns, even if he or she doesn't learn it in a classroom.

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