As students head back to university this fall, one question is whether or not to get a credit card. They probably should. Credit cards are practical and useful and managing them is a fact of life. So the sooner young adults learn to use one responsibly and begin building a credit history, the better.
There are advantages to getting a card before the student arrives on campus because it avoids the pressure of a campus kiosk. It also gives students a chance to talk about credit with their parents and allows plenty of time to ask the right questions of lenders.
Worried parents who are asked to co-sign can keep the credit limit low until they’re confident their child can handle it.
The best deal for students is a credit card that has no annual fee and rewards each purchase with cash back or discounts on things they need. The rewards should be useful, though: earning points toward a new car or a fabulous holiday might sound good, but chances of spending enough to earn the points are out of reach for most students. You’d have to spend far beyond your means to get the reward.
All the big banks offer student cards, but BMO, Scotiabank, MBNA (owned by TD), and RBC have the best deals. The cards all offer a number of similar features. Most have a high interest rate, but come with no annual fee and the chance to earn rewards.
BMO SPC Cashback MasterCard
One student credit card that stands out is BMO’s SPC Cashback MasterCard. It gives 1 percent cash back with every purchase, plus offers discounts at hundreds of retailers. The SPC program offers up to 15 percent off at places such as Boston Pizza, Gap and First Choice Haircutters.
Students will likely start off with a $500 credit limit with the chance for an increase if they keep their account in good standing. Earn $30 cash back on $3,000 a year in spending, plus all the other SPC benefits are included free (the SPC card bought on its own costs $10). For a limited time you’ll get a $60 cash welcome bonus when you sign up for the card.
Scotia SCENE Visa
Scotiabank’s SCENE Visa card also fits the bill as a no-fee credit card that offers useful rewards for students. Get one SCENE point for every dollar spent on the card, and 5 SCENE points for every dollar spent at Cineplex theatres or on Cineplex.com.
Apply before October 31st and get 4,000 bonus points on your first purchase — good enough for four free movies at Cineplex.
MBNA Studentawards MasterCard
MBNA’s Studentawards MasterCard is another option for students. Earn 1 percent back with each purchase, plus 1,000 bonus points on your first purchase and another 1,000 points each year on your card’s anniversary.
Spending $3,000 a year will get you $50 back in the first year and $40 a year thereafter.
Avoid annual fees
Student credit cards that come with an annual fee should be avoided, no matter what kind of perks they include. Students simply don’t spend enough for the rewards to offset the fee.
For example, RBC’s Signature Rewards Visa gives you 1 percent cash back, but the $39 annual fee will wipe out all of your earnings and then some. Note that RBC student banking customers can get this card free.
A better option is RBC’s Cash Back MasterCard, which is a no-fee card that pays up to 2 percent back on grocery purchases and up to 1 percent back on everything else.
While credit cards are a necessity for many students, first-time credit users need to manage their spending carefully. Carrying a balance, even for one month, can lead to major debt problems down the road. Trust me, 19.9 percent interest compounds quickly!
Students need to understand that credit cards should be used for purchases that can be paid off each month and they should not abuse their credit limit. Putting recurring expenses, such as a cell phone bill or Netflix subscription, on your credit card while making sure to pay the balance in full every month is a great way to establish credit history and learn some financial responsibility.