At the start of the school year, it’s common for financial institutions to set up booths on college and university campuses to promote their credit cards.
The sales pitch is simple and enticing: sign up for a card on the spot and use it to buy things right away. To close the deal, you might even be offered a free box of cookies or a T-shirt.
And while all credit cards allow students to make online purchases, build their credit scores and access emergency funds, there are some things to consider when deciding which one is right for you.
Don’t accept the first offer
Even though you can get approved for a credit card in just a few minutes, you shouldn’t sign up with the first bank you see. There are dozens of cards available, so you want to find one that best meets your needs and rewards you for your spending.
And while you won’t be earning a ton of perks because a lack of income likely means relatively modest spending, there is a wide range of benefits available, such as rewards that give you discounts on movies, food or travel.
An obvious place to begin your search is with the financial institution where you do your day-to-day banking. They’ll likely have a student banking package that includes a no-fee credit card and a chequing account that gives you unlimited free transactions. Alternatively, you could look at online banks such as Simplii Financial and Tangerine. Both of these digital banks offer no-fee credit cards and bank accounts.
Explainer: Credit cards 101: How to choose the best credit card for you
Look out for fees
Most student credit cards won’t have an annual fee – so make sure you choose one that doesn’t. However, they all typically have an interest rate of 20 to 24 per cent. That’s some of the highest interest rates you can get with consumer debt – more than double the average interest you’d currently pay for an auto loan and three times more than a mortgage. The good news is that as long as you pay off your balance in full and on time each month, no interest charges will apply. If you don’t pay it all off, you’ll be in debt.
When you’re approved for a credit card, you’ll likely be asked if you want credit card balance protection. This optional insurance will reduce or pay off your credit card balance if you lose your job, become disabled, or pass away. While this may sound like an option you might want to consider, it’s expensive and rarely worth it – especially for students.
Foreign transaction fees are another charge to be aware of. Most credit cards charge you a fee of 2.5 per cent when making a purchase that’s not in Canadian dollars. To avoid this fee, you could get a prepaid card that doesn’t charge forex fees, such as the EQ Bank or Wealthsimple Cash card. There are also credit cards with no foreign transaction fees, but students typically wouldn’t qualify for them because of the income requirement.
Think about the rewards you want to earn
Generally, rewards can be broken down into three categories: cash back, store rewards and travel rewards. Some of the better rewards programs for students include:
- Cash back. Every bank will offer a cashback credit card. This is the easiest type of reward to understand since you’ll get money back on almost every purchase. If this appeals to you, be sure to find out how often your cash back is paid out.
- Aeroplan. CIBC has a no-fee Aeroplan Visa Credit Card for students. This is a good choice for anyone that’s looking to travel in the future. Aeroplan is the loyalty program for Air Canada, and you can use your points on flights, hotels, vacation packages and more.
- American Express Membership Rewards. If you’re looking for flexibility, consider an American Express card. With this program, 1,000 points can be redeemed for $10 in travel or a statement credit, so it’s like a hybrid travel/cashback card. Because American Express doesn’t have set income requirements, its cards may appeal to students looking to earn more points. That said, an established credit history – such as a cellphone account or existing credit card in the student’s name – would be required to be considered.
- Scene+. Scotiabank has a few cards that earn you Scene+ points. These points can be redeemed at Cineplex Theatres, Empire-owned grocery stores (Sobeys, Safeway, Foodland, etc.), and participating restaurants such as Swiss Chalet, East Side Mario’s, Harvey’s and more.
Focus on good credit habits
Earning rewards with a credit card is great, but building your credit score is arguably your first priority as a student. Your credit score is a number between 300 and 900. The higher your credit score, the more creditworthy you are. This will matter in the future when you need to borrow money for an auto loan or mortgage, since you will need a good credit score to qualify for the best interest rates. Many landlords are now looking at credit scores when deciding who to rent to.
With dozens of credit cards for students to choose from, it’s worthwhile to do some research. First and foremost, students should focus on learning to use credit responsibly, which will benefit them more in the long run.
Barry Choi is a personal finance and travel expert at moneywehave.com. He was previously affiliated with Aeroplan, Simplii Financial and Tangerine, but currently has no relationship with any of the brands.
