Hi, I'm John Ulzheimer, a credit expert who contributes to CreditCardInsider.com.
Today's question is this. What will happen to
my student credit card after I graduate? So what we're going to talk about today
is the possibility of you switching your student credit card
to a non-student credit card and the impact, first off the likelihood
of that happening and second is the impact of that on your credit.
So, when you have a student credit card essentially
it's almost misleading because
it's still a credit card, it just happens to be marketed to people who are currently in school
and they're going to have certain perks
regarding students, that are going to appeal to people who are living the student
lifestyle at that time. But a credit card is a credit card is a credit card. It has an
opening date, it's either a Visa, MasterCard, Amex or Discover brand, it's got a magnetic stripe
on the back or a chip in it, and you can use it to buy stuff. That's a credit card regardless of
whether it's marketed toward students or people my age.
When you graduate it is
plausible and possible for you to ask the credit card issuer
to convert that card from the student version
to a non-student version. Now what does this mean to you? What it means to you is if you're
able to get them to do so it's very likely that they're going to increase
your credit limit and in some cases they're going to increase it considerably.
Folks who have student credit cards tend to be younger
and they tend to be under 21, so the limits
set on those cards are going to
be relevant to the amount of income you have, and the income you have is likely
going to be almost non-existent, or very very low, and so it's
unlikely that as a student credit card structure
that your card had a 20 or 25 or $30,000
credit limit. It probably had something much more modest. My first credit card, when I was a student back
in the dark ages,
had a credit limit of $250. So they mitigated the risk obviously of doing some business
with someone as young as I was and inexperienced as I was by making it almost impossible
to get myself into a lot of credit card debt. When I graduated it converted to a
$3500 credit card. So they increased the interest rate
by several hundred percent because I had just gone from being a
not-working student to a now working
non-student and it really has not changed
in the past several decades. That's generally how it happens. If you do choose
to convert off the student card to a non-student card
you actually my help your credit scores and same time. So you may actually knock out two
birds with one stone by doing this.
Credit scoring models like to see low balances relative to the card's credit limit.
So obviously if you've got a credit card with a $500 limit,
even modest and minor purchases are going
to eat up a large percentage of that credit limit. Think of going and
filling up your car with a tank of gas a couple of times during the month
and buying groceries once or twice during the month. Well that could be your entire
$500 credit limit right there. However, making the same purchases on a card that's got a 10,
15, or $20,000 credit limit is almost immaterial
because at a ratio, the balance to limit
is very very low verses in the student structure in which the balance to
limit can be very very high. It's the same amount of debt, it's just that the credit limits are so
different
and credit scoring models would rather see you over here where you have a lot of credit limit and
a low balance verses a low balance but also a low of credit limit.
So that's also going to be one of the ways you're going to benefit from
converting the car out of the student environment to the non-student environment.
Another thing to consider is you actually might convert from a
non-rewards card to a card that actually has rewards. Most credit cards today
have some sort of rewards program associated with it, whether it's
airline miles, points, cashback, statement credit,
something to reward you for using the card, however in the student environment, those are
actually much more uncommon than in the non-student
environment. So if you're going to continue to use the card, which most people do and should
frankly, they're a great way to safely spend money,
then you're going to want to start using card when you're getting something back
for your usage, and that's going to be a rewards card. You're going to want to choose one probably that has
no annual fee, and
has great usability so, you know it's really hard today to find a merchant that doesn't
take one type credit card. Yes, they do exist, but those are
atypical and they're the exception rather than the norm. So if you're thinking of converting
your student card to a non-student card, I say
go for it, because the benefits are clearly going to outweigh
any problems that you're going to have. If you have any other questions pertaining
credit or financial topics, then please submit them to
CreditCardInsider.com or in the comments section below.
Thank you very much for watching and have a nice day.