Should You Keep Your Student Credit Card?

A student credit card may not be as good as some of the industry-leading products, but it could still be worth keeping.

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When you're a college student, there's a good chance you don't have a ton of income or a long-established credit history. Fortunately, there are some fantastic student credit cards on the market that are designed to help students establish and build their credit.

However, once you're out of college and have established your credit, you'll need to decide whether to hang on to your student credit card or close the account. There are arguments for and against both options, so here's a rundown of what you should think about before deciding.

Why you might want to replace your student credit card

Simply put, student credit cards are designed to be starter cards. Because their target consumers don't have well-established credit or high levels of income, student credit cards tend to have low spending limits and perks that don't quite measure up to some of the best credit card products on the market.

For example, while some student credit cards have 1% cash-back rewards, it's not difficult to find a traditional cash-back rewards credit card with double that rate. You can also find 0% APR credit card offers that allow you to avoid paying interest for as long as 18 months or even more. You're unlikely to find a student credit card with perks anywhere near that good.

There are also some good reasons to keep it

Although your student credit card is likely inferior to the types of credit cards that are geared towards consumers with established credit, there are some good reasons to keep it -- even if you stop using it and get a better credit card.

The reason has to do with your credit score. Specifically, there are two categories of the FICO credit scoring formula that will be directly affected by your decision to keep or get rid of your student credit card.

First, the "length of credit history" category makes up 15% of your FICO® Score. This category considers the age of your oldest credit account, the ages of your individual credit accounts, and the average age of all of your credit accounts. The older your accounts, the better your score. If you close your student credit card, it could ding your score in this category. On the contrary, if you decide to keep it open, it could become even more of a positive catalyst as time goes on.

Second, the "amounts owed" category makes up 30% of your FICO® Score. Among other debt-related metrics, this category considers the percentage of your available credit that you're using.

Consider this example. Let's say you have two credit cards: an unused student credit card with a $1,000 limit and another card with a $1,000 balance and a $4,000 limit. Right now, you're using $1,000 out of your $5,000 in available credit, or 20%. If you close your student credit card, your $1,000 balance will instantly shoot up to 25% of your available credit, which will cause your score to drop.

The verdict

Here's the bottom line. If your student credit card doesn't have an annual fee or any other ongoing expenses, it's probably a good idea to keep the account open. The fact that your student credit card is probably one of your oldest credit accounts, along with the effect it has on your credit utilization ratio, can make it a positive factor for your credit score.

On the other hand, if your student credit card has an annual fee and you don't need it anymore, it could be a smart idea to close that account. In any case, if you've been responsibly using credit for a few years or more, it's probably time to get a better rewards card for your everyday spending.

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