College is a great time to get your first credit card. It’s fairly easy to get a credit card while you’re in school, even if you have little or no prior credit history. If you manage your credit card use wisely and keep your spending under control, you can learn the basics of finance and establish a solid credit history. Once you’re out of school, your good credit will save you money and a lot of hassle.
The idea of a credit card is appealing to both students and their parents. Students can use the card to make purchases they may not otherwise have been able to afford and parents can be comforted knowing their child has something to protect them in case of a financial emergency. Some students and parents choose to use debit cards and prepaid “credit cards” during freshman year and wait to apply for credit cards until sophomore year or later.
Students should be careful when selecting a credit card. Often they are bombarded with credit card offers in the mail or solicitations on campus. These offers can be tempting, but they aren’t all created equal. Here are a few things to consider when comparing credit cards.
That 0% introductory rate looks like a great deal, and it is until the introductory period ends and your rate is increased. Look for a good purchase annual percentage rate (APR) rather than a low introductory rate. Your purchase APR is the interest rate the credit card company charges you for purchases after the introductory rate. This is probably not the only rate on your card. There are usually different (possibly higher) rates for cash advances and balance transfers. Make sure to check the default APR. This is the rate the credit card company will charge you if you don’t pay your bill. Look for a card with the lowest purchase APR. 71 % of college students with a credit card had no idea what interest rate they were paying. One common credit card practice is called “universal default.” Under universal default, a student who has two credit cards and faithfully makes timely payments on one, but misses a payment on the other, can find that the interest rate he’s being charged has been raised to 30% on both cards. 8 of the 10 leading credit-card issuers raise cardholders’ interest rates based on information from credit reports. Check to see if your card does.
There are a lot of hidden costs associated with a credit card. Read the fine print to determine these fees. Some cards will charge fees for signing up for or possessing the card. You can probably find a card application without either of these fees – why pay them if you don’t have to? Check for an annual fee. Sometimes you are charged for simply having the card. Once again, you can probably find a card to apply for with no annual fee. Late payment fees and over-the-limit fees vary from card to card. The average over-the-limit fee is $35 and the average late fee is around $25. Late fees can sometimes lead to a higher interest rate.
The grace period is the amount of time that new purchases remain on your account before interest is charges. Check to see what the grace period is for any card you are considering. Some cards have grace periods of up to 30 days, but the average is around 23 days. Some cards have no grace period at all which means users will pay considerably more interest. Keep in mind that grace periods may apply only to purchases, and not to balance transfers and cash advances.
Carefully consider the rewards program associated with a credit card offer. Is it really going to save you money? Not all rewards programs are going to be useful to a college student. If you think the reward program on a card would be beneficial, read over the terms to figure out how to qualify for rewards, expiration information, etc. Place more emphasis on rates and fees rather than reward programs.
You HAVE to read the fine print. By submitting your credit card application, you are legally agreeing to the terms established by the credit card company. Make sure you know what you are agreeing to.
It’s important to know the company that is issuing your credit card. Are you dealing with a large, national company or a smaller, local company? Is your card widely accepted? It may be most convenient to try to get a credit card through a bank where you already have an account. Make sure the card issuer you choose reports to one of the three major credit card reporting agencies. Credit reporting is essential for the college student looking to establish credit. Know the company’s policy if you have trouble paying your bill. No one plans for that kind of situation, but it is very important to consider.
College students can use their internet aptitude to responsibly manage their credit cards. Many card issuers allow you to keep track of credit expenses and view statements online. You can make payments online from your computer. Try to pick a card that you can manage online.
The average undergraduate has $2,200 in credit card debt. That figure increases to $5,800 for graduate students. 54 % of college students pay off their credit card balances every month. Most students tend to be responsible and use their credit cards wisely. People are not born with an innate ability to manage money. It’s a skill that has to be learned.
Credit card solicitation on college and university campuses is a common occurrence. Some campuses restrict solicitation while state laws mandate other college solicitation policies. This doesn’t stop numerous colleges and universities form multi-million dollar partnerships with credit issuers. Colleges often receive money – in a lump sum, an amount for each completed application, or, in some cases, a percent of the amount charged by those possessing the cards.
Colleges have embraced the idea of credit cards among their students. According to one study, 77 percent of colleges reported accepting credit cards for payment of tuition. 19 % of students have charged their tuition and fees. Student loans have lower interest rates than most credit cards.
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