If you’re a college student, or about to become one, chances are you’re thinking about getting a credit card. In fact, you may have already received numerous offers for student credit cards, and you’re wondering which one is the right type of credit card for you. Here’s another great article from Student Finance Domain that provides you with lots of helpful advice on choosing the student credit card that’s right for you. There’s no doubt that credit cards are extremely powerful and useful financial tools that can affect your credit score. But before you haphazardly accept an offer from a credit card company, you should know the basics about credit, how to protect your credit card and how to get out of credit card debt. Student Finance Domain can help you understand how it all works.
Credit Card Basics
When you use a credit card, you are in fact taking out a loan. Credit card companies must make money on what they lend you; therefore they charge you interest and fees. Those are probably the most important factors to consider when choosing a credit card. It’s also smart to know what other options exist. You can use our student card offer comparison to help you choose the best card for you. Sometimes a credit card is not the right financial tool, so be sure you review your alternative or private student loan options as well. These loans can sometimes offer students additional financial benefits and more payment flexibility than credit cards do.
Over the years four credit card brands have become known as the ‘major credit cards.’ The four – Visa, MasterCard, American Express and Discover – are available directly from the companies themselves as well as through a number of banks, credit unions and corporate partners. Although credit cards are available with countless combinations of interest rates, fee structures and rewards programs, it’s important to note that there are really three basic levels:
- Secured credit cards – a deposit must be made on the card to secure credit. These credit cards are typically a good bet for those individuals who have no credit, or have damaged their credit in some way
- Regular credit cards – are typically entry-level cards that offer low to moderate credit limits, limited additional benefits and services and don’t require a security deposit. A college student credit card will typically fall into this category
- Premium credit cards – come with fancier names like gold or platinum and are extended to people with higher incomes and good credit. These credit cards offer higher credit limits, many more benefits and services and don’t require a security deposit
Credit Card Fees and Interest
There are a number of different fees that a credit card company might charge for using their card. The first is the annual fee, sometimes referred to as a membership fee. You’ll find that many credit cards that offer rewards programs charge annual fees. Some other types of credit card fees you should be aware of are:
- Cash advances – Allow you to withdraw cash at ATMs with your credit card, but can be very costly
- Balance transfers – Enable you to transfer a balance from one credit card to another card. Offers like zero percent interest may sound appealing, but read the fine print for hidden costs
- Exceeding credit limit – Your credit limit is the total amount of money a credit card company grants you permission to spend on its card. If you go over your credit limit you’ll pay dearly in fees
- Late payments – Make your payments on time each month and avoid hefty fees, negative marks on your credit, and increased interest rates
- Underpayment – Always make the minimum payment required each month or you’ll incur fees
The second key way credit card companies make their money is by charging you interest on your purchases. Interest is calculated once the ‘grace period’ ends. This period varies by credit card company and is simply the number of days allowed before interest accrues on a purchase. Interest is calculated using an annual percentage rate (APR) which can vary widely from 0% to 23% and up. These differences can mean big bucks when you carry a balance on a card, so it’s important to shop around to find the best rate.
Special Offers and Rewards Programs
Many credit cards will feature special offers throughout the year that you may be tempted to use. Introductory rates are usually low APRs credit card companies use to acquire new customers. These rates, which start at 0%, are valid for a limited amount of time. At the end of the introductory period, the APR may increase slightly or may jump significantly. Additionally you may receive offers for balance transfers. Typically if you transfer a balance from one card to another, you will receive a low introductory rate on the balance transferred, and may be charged a balance transfer fee. This can be a useful tactic for managing your credit, but be careful not to do this too often. Constantly transferring balances reflects very poorly on your credit score.
Many credit cards also offer ‘rewards’ or ‘loyalty’ programs to their customers. These programs reward customers with added benefits for using that credit card for a purchase. Rewards are typically earned by accruing points that can be redeemed for something of value. There are countless types of rewards programs, offering various perks for loyal customers. Some of these include:
- Airline miles programs – Points earned in miles that can be used towards airline flights
- Gasoline programs – Points can be used to purchase gas
- Retailer programs – Points can be used towards purchases at that retailer
- Automobile programs – Points can be used towards purchases of automobiles
- Cash back programs – Cash is earned instead of points
College student credit card reward programs may offer perks more appropriate for a student’s lifestyle. Be sure to look for a program with rewards that fit your personality, whether that means free VIP passes to spring break parties or free textbooks when you select the best credit card for college students.
Obtaining a Credit Card
You may have heard that ‘you need credit to get credit.’ So what’s the student without credit to do? There are some easy ways for you to establish credit as a student. One option is to open a student checking account and student savings account. These accounts will show creditors that you have money and your returned checks can be used for proof of payment to showcase your reliability.
Secondly you can look for a college student credit card. These credit cards typically have low, entry-level credit limits and are usually available with no annual fee. The best student credit card for you will be the one that does not charge a fee to use, carries the lowest interest rate you can find, and offers the best rewards for you.
If you aren’t able to get your first college credit card from a major credit card company you can kick start your credit with a retail store card. It’s typically easier to obtain a store credit card, and by using that card wisely you should start to build up credit. That means spending only what you can actually afford, paying your bills on time and leaving a small balance on the card from month to month to help you build up credit. These efforts may be enough to ‘graduate’ you to a college student credit card backed by a major creditor in a matter of months.
Another easy way to build your credit history is to have a parent or someone you trust, and of course who trusts you, cosign a credit card for you. This means that the cosigner’s credit will be tapped to help you establish yours. When a cosigner opens an account with you, he assumes financial responsibility for your card, and in the event that you don’t pay your bills, his credit is at risk. So if you have a cosigner, be sure to pay your bills on time or you’ll risk more than just bad credit.
The most important thing you must consider before flashing your plastic is how you will ultimately pay for your purchases. A credit card is not ‘found money,’ nor is it income. If you use your credit, you have a contractual obligation to pay it back. If you fail to pay it back under the terms you’ve agreed to, you will pay in a number of other ways. The first thing that usually happens is that your interest rate for that credit card will be raised. Then the late payments will hit your credit report and other creditors can also raise your interest rates – regardless of whether you’ve been late with those particular accounts or not. And the companies aren’t limited to credit cards. For instance your car insurance can be increased because of delinquencies on other bills. And last, but certainly not least, your credit score can affect your chances of getting a job. Yes that’s right. Some employers check their applicants’ credit scores and those with bad credit are less likely to get jobs. So think before you swipe.