How Student Credit Cards Work

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1. Student credit card companies provide student cards to students, either through direct marketing or through a marketing partner (for example, the LL Bean MBNA card)
2. The cardholder makes a transaction with the student card at a participating merchant.
3. The merchant captures the card data and gets approval.
4. Transaction data is sent to a processor by the merchant's bank for routing to the issuing bank and for settlement.
5. Merchant is generally paid within three business days.
6. The transaction is usually posted to consumer's account within three business days.

Student Credit Card Types

There are basically three types of student credit cards:

1. Bank cards, issued by banks (for example, Visa, MasterCard and Discover Card)
2. Travel and entertainment (T&E) cards, such as American Express and Diners Club
3. House cards that are good only in one chain of stores (i.e. a Sears charge card)

Kinds of Student Credit Card Accounts

Student credit card grantors generally issue three types of credit cards accounts. The basic terms of these account agreements are:

Revolving agreement. A consumer pays in full each month or chooses to make a partial payment based on the outstanding balance. Department stores, gas and oil companies, and banks typically issue credit cards based on a revolving credit plan.

Charge agreement. A consumer promises to pay the full balance each month, so the borrower does not have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.

Installment agreement. A consumer signs a contract to repay a fixed amount of credit in equal payments over a specific period of time. Automobiles, furniture and major appliances often are financed this way. Personal loans usually are paid back in installments, too.

How Your Credit Card Rights Work for You

Your card comes with several important, built-in legal benefits you may not be aware of. Many of these "credit rights" are protected by law:

Your Credit Rights

You are protected against unfair credit discrimination and are guaranteed equal access to credit privileges based solely on your credit history (or in some cases, that of a spouse or former spouse) and other financial information. Credit cannot be denied based on your age (if you are at least 18 years of age), racial background, sex, marital status, religion, national origin, or the fact that your income is derived from a public assistance program. These rights are protected by the Equal Credit Opportunity Act.

Your Cardholder Agreement

The Truth In Lending Act requires disclosure of interest and fees that can be charged to you by a student credit card issuer. Explanation of how and when charges will be applied to your account can be found in your cardholder agreement and on the back of your monthly statement. Read these documents with care to fully understand how you are being charged and how your interest payments are being calculated. If you have any questions, contact your credit card issuer.

Unsatisfactory Purchases

The Truth In Lending Act provides you with recourse if you are dissatisfied with an item or a service purchased with your student credit card. Certain conditions must be met: The purchase must exceed $50 and have been made in your home state or within 100 miles of your mailing address. You must start by making a good faith attempt to resolve the dispute directly with the merchant in question. If this doesn't work, contact your card issuer in writing. Check your billing statement for full details; but remember that it is always more difficult (and often impossible) to dispute a charge once you have made payment on it.

Billing Errors

The Fair Credit Billing Act protects you in billing disputes with card issuers and certain other creditors. If you think you have found an error, write to the billing dispute address on your statement. You must contact your card issuer within 60 days after they send you the first bill containing the error. Your card issuer is legally obligated to acknowledge your letter within 30 days and must either correct the error or explain it to you in writing within two billing cycles.

How many student cards do you need?

Having at least three major credit references is necessary to validate a solid credit history. A recommendation is to have one card for major purchases, one for convenience, one for business and possibly one for emergency use. Keep in mind, though, that too much available credit could hurt your credit worthiness.