What to Look for in Student Credit Cards and Lines of Credit

The banks are gearing up for their annual marketing campaign aimed at students. The charm offensive usually involves freebies or cash bonuses if you sign up for a student credit card or line of credit.

It’s easy to see what’s in it for banks: first-time customers to build a (ideally) lifelong relationship with.

But for students?

Don’t get me wrong, credit cards and lines of credit can come in handy when you’re a student. For one thing, establishing a credit history early on is more important than ever in today’s hyper-competitive rental market. Landlords in Toronto, for example, regularly ask to see the credit scores of potential tenants. Not having a credit history can make finding a home even more difficult.

That said, students should exercise caution. Here are three tips to help you decide if and what to sign up for:

Forget rewards. If your budget is tight, you probably won’t spend enough to make the points program worthwhile. At this point, just focus on developing the habit of paying off your balance in full and on time each month.

Choose no fees and lower interest rates. Rather than chasing after points, choose a card with no annual fee and a lower interest rate. Ideally, you would never have to worry about paying interest because your payments are always made on time, but… life goes on.

Know your debt. If you’re choosing between a student line of credit and government student loans, do a comprehensive comparison. Lines of credit often have a lower interest rate, but there are more pros and cons to consider.

Lines of credit are flexible: like a credit card, you only borrow what you need, and as you repay, you free up more room to borrow. However, you usually have to pay at least the interest on what you borrow while in school (you can often continue to pay interest only even six to 12 months after graduation).

In contrast, with government student loans, you don’t have to worry about payments while your nose is in the books. And after you graduate, you also get a six-month grace period with no payments – although sometimes interest accrues during this time.

Plus, if your income is low enough, you’ll be eligible for repayment assistance, an option not available with a line of credit. Finally, you get a tax credit on the interest you pay on your government student loans. With a line of credit, you give up this tax benefit.

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