What happens to your student credit card after graduation

If you are a college student and graduating soon, you are probably wondering what will happen to your student credit card after graduation. Although student credit cards are some of the best starter credit cards, they are not so great after graduation. This is because student credit cards usually come with lower credit limits, basic features, and minimal benefits. When you graduate, you can request an upgrade, cancel your student credit card, or continue using your card.

Knowing what to do with your student credit card when you graduate is very important. Many people consider closing their student credit cards after graduation. This is probably not the best choice considering other options on the table. This article will walk you through the options you have for your student credit card after graduation.

Key takeaways

After graduation, your credit card issuer may reclassify your student credit card account to a non-student credit account. These changes can happen automatically. However, you can call your credit card issuer and request changes to your account.

Your student credit card will still work just like any other credit card when you graduate. That is you can continue using your student credit card after graduation without making any changes to it. Keep in mind that the credit limit, features, and benefits might still be limited.

Some lenders do not have options to switch your student credit card to a non-student credit card. In this case, you can either choose to continue using your card as usual or close the account. Closing your account, however, will result in lowering your credit score and hurting your credit. This option makes sense only when you are paying annual fees on your card.

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What happens to my student credit card after graduation?

Student credit cards come with lower credit limits and fewer features and benefits. These credit cards are designed for students who by default are prone to spending a lot but do not earn a lot of money. In addition, students do not have the credit history to help them qualify for much better credit cards.

After graduation, it might make sense to get rid of your student credit card and apply for much better cards. Your income will be a bit higher, you will be more responsible, and capable of paying off your bills. Your bills will also go higher because of higher rent, mortgages, and other living expenses such as transportation, etc. That is why you need credit cards that have a higher credit limit and more benefits to supplement your income.

Credit card issuers are also well-aware of these life changes. That is why after graduation, your credit card issuer might automatically re-classify your student credit card to a non-student credit card. Most lenders especially large companies have these options. In case your lender does not have a non-student credit card version of your account, you can continue using your student credit card. It will still work just like any other card. The only downside of this option is that you might still have lower limits, fewer benefits, and fewer features on your card.

Some people choose to close their student credit cards after graduation. This option is not recommended unless it makes sense financially. By closing a student credit card account or any other credit account, you end up lowering your credit age and potentially increasing your credit utilization. These changes on your credit file can easily lower your credit score and hurt your credit.

You might also like: 9 Things to know before getting a credit card

What happens when you close a student credit card after graduation?

Closing a student credit card is like closing any other credit card account. All credit cards operate the same way and any activity on the card will have the same impact on your credit rating. When you close a credit card account, your credit score goes lower and it hurts your credit profile.

In other words, you lose all history you have built with the card. That is you end up affecting your credit utilization rate and the age of your credit. You can easily lose a lot of points on your credit score from closing a credit card account, especially an old card with a higher credit limit.

How does closing a student credit card affect your credit score?

Closing a student credit card account will lower your credit limit and the age of your credit especially if you are closing an old credit card. These effects, in turn, might result in lowering your credit score. The following is a brief description of how closing your student credit card might result in lowering your credit score and affecting the health of your credit.

Closing a student credit card might result in a higher credit utilization rate which might lower your credit score. The credit utilization rate affects 30% of your FICO score and 20% of your VantageScore. Your credit limit is the sum of all credit limits you have on each credit card. For example, if you have two credit cards with $500 and $1,000 consecutively, your total credit limit will be $1,500. Let’s assume that currently have a 40% credit utilization rate (you spent $600 of your total credit limit). After closing a $500 student credit card, your new credit limit will become $1,000 and your new utilization will become 60%. That is you went from a 40% utilization rate to 60% utilization from closing your student credit card. This increase in credit utilization ratio might result in a decrease in your credit score.

Closing a student credit card will lower the age of your credit which in the end might lower your credit score. Credit age affects 15% of FICO scores and 21%(credit age+credit mix) of your VantageScore 4.0. The age of your credit is the average age of all credit accounts you have opened. If you want to close a student credit card that you owned since you were a freshman, for example, you will be losing almost 4 years of credit history (on that specific card). In order words, that card has a great impact on your credit file, and closing it might result in a much lower credit age which in turn could lower your credit score.

Why should you upgrade a student credit card to a non-student credit card?

Student credit cards are designed for students who are new to credit and have lower incomes. For this reason, student credit cards come with much lower credit limits. In addition, they don’t come with the best features that you see with non-student credit cards. This allows you to build your credit history while you are in college without getting into financial trouble or accumulating a lot of credit card debts.

After graduation, however, your student credit card might not offer the best benefits you would get if you switched your account to a non-student credit card. Regular credit cards come with higher credit limits and competitive rewards such as cashback, sign-up bonuses, miles, and points. If you keep your student credit card after graduation, you might not have access to these benefits.

The good news is that most credit card issuers allow you to upgrade your student credit card to a non-student credit card. This change can happen automatically. However, you might want to call your credit card issuer and ask for an upgrade if you are planning to graduate or after graduation. Some credit card providers such as small institutions might not have an equivalent of a non-student credit card. In this case, you will end up keeping your student credit card or closing the account which is not recommended.

When is it a good idea to close your student credit card account?

Student credit cards are some of the best starter credit cards for people who are new to credit. Being a starter credit card means that the card comes with basic benefits and features. This allows you to build your credit history and later qualify for better credit cards. So, when does it make sense to close your student credit card account?

If you are planning to use your student credit card after graduation, it might be beneficial to keep your credit card account open. This is because closing your account will result in lowering your credit score and affecting your credit.

On the other hand, if you are not planning to use your student credit card, it will make sense to upgrade to another credit card that you are planning to use. For example, you can upgrade your student credit card to a cash-back credit card that offers higher rewards.

After graduation, your income might go higher and your expenses might increase as well. If the card you have does not offer that much of benefits, you can easily get rid of it and get a card that benefits you the most due to these financial changes.

It will also make sense to close your student credit card if it comes with annual fees. Many credit cards do not have annual fees. However, if yours come with fees, it will make sense to close the account. You don’t want to pay fees on a credit card that comes with fewer benefits and a lower credit limit.

What to look for when getting a credit card?

Credit cards are some of the best credit accounts you can use to increase your credit score and build credit. Regardless of your credit history, there is a credit card somewhere you can qualify for. For example, if you have a thin credit file, you can easily qualify for a secured credit card or a starter credit card. Those with a healthy credit history can easily qualify for credit cards with great features and higher benefits such as cashback, miles, or points and higher credit limits.

Choosing a credit card, however, can be a daunting process. There are many types of credit cards with different features and benefits. Without knowing exactly what you want in a credit card and why can make it harder to choose the right credit card.

The following are tips you can use to choose the right credit card.

Know why you need a credit card. Do you want rewards? Do you want to build a credit history? How about saving money on your travels? The answers to these questions and many more will help you pick the right credit card category.

Know your credit score. A credit score is a significant factor in determining your credit card approval rate. With a good credit score, you can easily qualify for almost any credit card(subject to other factors). However, if you have a bad credit score, you will more likely be denied credit or pay a higher annual percentage rate(APR) when you get approved for the card.

Stick to credit cards you qualify for. Credit cards are like regular loans. Yes, it is easy to get approved for a credit card and the process is straightforward. But, it does not mean you will have a 100% approval rate. The card issuer will still need to evaluate your creditworthiness. That is why you need to apply for a card you are more likely to be approved for. For example, if you have bad credit, it would be wise to apply for a secured credit card. Each credit card application results in a hard inquiry on your credit reports and lowers your credit score. If you apply for many credit cards you do not qualify for, your applications will be denied and your score will slide due to hard inquiries.

Pay off some of your debts. Although you don’t need to be debt free to qualify for a credit card, you need to have a reasonable amount of debt before you can qualify for more loans. Lenders usually use your Debt to income ratio(DTI ratio) to estimate whether you can take on more loans and how much they can approve you for. A higher ratio indicates that you have too much debt already, and therefore, it will be difficult to take on more loans. The more debts you have, the lesser the chance you will qualify for more credit.

Make sure that you have some form of income. The lending industry is based on a simple principle: risk assessment. All lenders look for borrowers who are less risky. In order to be less risky, you need to behave responsibly, make financially sound decisions, and have an income to pay off your loans. Credit cards are loans and you need income to pay off balances on your cards and accrued interest.

The bottom line

Your student credit card continues to work just like any other credit card after graduation. This does not mean you have to be stuck with a student credit card. You can easily change your credit card to a non-student credit card if your card issuer has these options. Changing to a non-student credit card will result in better rewards, features, and other benefits such as higher credit limits. Although it is possible to close your student credit card after graduation, you must approach this option with a lot of caution. By getting rid of your credit card account, you end up hurting your credit and lowering your credit score.