How to pick a student credit card in 8 easy steps

How do student cards differ from other credit cards?

Student credit cards are a great way for undergraduates to build credit while getting their degree. But student cards aren't exactly the same as any other rewards, balance transfer or other regular type of credit card:

Lower credit score required

Because student cards are for students, they have simpler credit score requirements that make them easier to access. This lower eligiblibility requirement makes student cards a great option for those who want to build a positive credit history but don't want to be tied to a secured credit card that requires a cash deposit to open.

Lower credit limits

Student cards typically have lower credit limits than regular credit cards from the same bank or issuer, which may restrict your overall purchasing power. These reduced credit lines help students gain experience with credit at a much lower risk level but might impact your available credit for larger purchases like textbooks, each semester.

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How to choose a student credit card

1. Hunt for low or no annual fee cards

Since students often have limited income, it’s important to work with a bank that understands your needs.

Most credit cards have both monthly fees for interest accrued and an annual charge for using the card. In Canada, annual fees can cost you a few dollars up to a few hundred dollars, depending on the card. For students it’s best to look for a starter card that has low annual fees or waives them entirely.

For example, the Bank of Montreal (BMO) offers a CashBack Mastercard for students with a $0 annual fee. For more options, check out the Money.ca guide on best student credit cards.

2. Find a card with a low monthly interest rate

The next step is assessing the monthly interest rate on student credit cards.

If the balance isn’t paid off in full each month, there will be an extra fee you must pay. The amount owed is determined by the credit card balance and the Annual Percentage Rate (APR) charged by the card. In Canada, most credit card providers charge between 19.99% and 29.99% per year.

To calculate your monthly interest, you can take the card's APR and divide it by 365 (number of days in a year). For instance, a credit card that charges 19.99% APR would mean you pay approximately 0.000548% in interest, each day on the unpaid card balance. This might not seem like a lot to start with, but interest charges can grow quickly and, if you're not careful, these fees can easily spiral out of control over the course of the school year.

3. Look at cashback or rewards programs

Another key factor to consider is the cashback or rewards program offered by a credit card.

Banks split their credit cards into cashback and rewards cards. A cashback card might get between 1% and 5% back per qualifying purchase.

A rewards card could generate Air Miles, for example, to cut down on the cost of a flight home. Movie buffs on the other hand might be more interested in Scotiabank’s Scene+ student Visa Card.

Reward programs tend to give you more benefits with less flexibility, while cashback can be used to offset purchases or pay bills.

To find out more, check out the Money.ca guide on cashback cards and reward cards.

4. Check out student benefits

Many credit cards also come with perks geared at the student experience.

These can include:

• Discounts at popular stores
• Rewards for a high GPA
• Access to financial planning tools
• Extended warranties

Checking in at the local student experience centre is a good way to find potential deals and even double-up on savings.

5. Set a credit limit

Next consider the maximum credit card limit available.

A lower credit card limit makes it easier to avoid overspending since you have less runway to work with. However, overspending with a low limit can be a big problem. Spending past the credit limit incurs fees and damages your credit score.

Try to anticipate the largest single purchase you plan to make during the semester. If you need $1,000 for a flight home, budget that into your credit card limit.

6. Remember fees and penalties

Unexpected fees and penalties are one of the biggest concerns for new credit card holders.

The top three things to look out for are:

1. Late payment charges
2. Over-limit fees
3. Foreign transaction fees

Keep in mind that, just because you owe interest at the end of the month, doesn’t mean that you’ve done something wrong. Being able to pay off a large purchase while accounting for interest is part of developing financial literacy.

7. Credit-building potential

A good credit score can make the difference between snagging a dream apartment and having to compromise. Everyone, from landlords to car dealerships, look at credit score as a way of knowing how reliable a customer is when it comes to making payments.

Credit scores can be broken down into five tiers:

• Excellent credit: 850 to 800
• Very good credit: 799 to 740
• Good credit: 739 to 670
• Fair credit: 669 to 580
• Poor credit: 579 to 300

Most major Canadian banks report to credit bureaus like Equifax and TransUnion. If you see a credit card deal from an unfamiliar bank, make sure to double check that it reports to a reputable credit bureau.

8. Customer service and support

Finally, look into the quality of a bank’s customer support network.

Customer service will be the first point of contact in the case of fraud or a disputed payment. Find banks that allow for multiple support options such as through an app and online in addition to phone or email. The more ways to get in touch with the bank the better.

Bottom line

By focusing on these factors Canadian students can choose a credit card that not only meets their immediate needs, but also supports life-long financial literacy.

Sources

1. Equifax: Spot Identity Theft Before It's Too Late

1. TransUnion: Get your Canadian credit report & score