College Student Credit Card
Everything college students need to know about getting and using their first credit card.
You’ve seen the ads and been tempted by the giveaways – but how
much do you really know about credit cards? Wading through offers
to find a credit card that suits your student lifestyle can be
tricky. If you know a little about how credit works and your options,
you can start your credit report off on the right foot. Here’s
a crash course in credit cards:
Statistics – The prevalence of credit cards among college students
has been growing fast over the last few years. According to Nellie
Mae, 83% of undergraduate students in 2002 had credit cards, a
24% increase in credit usage from 1998. Plus, undergrads now have
a whopping 4.25 credit cards to their name on average. There’s
a downside to all this credit mania – the number of bankruptcies
filed by people under 25 is also escalating, up 33% between 1991
and 2000. Now that you know the credit stats, let’s move on to
some of the details.
Economics – Think you’re ready for a credit card? Opening a credit
account has its benefits: you’ll have access to emergency funds,
you can start building your credit report and your purchases are
protected if damaged or stolen. It also has its dangers: you can
easily rack up serious debt, interest rates can cost you and you
might damage your credit report if not careful. Opening a credit
account is only a good idea if you are sure you can use it responsibly.
Accounting – How can you find the card that is right for you? There
are four major factors to take into consideration when looking
at credit card offers:
• Card Type – Credit cards come in all sorts of shapes and sizes. Standard issue
financial institution and bank credit cards are most common. Credit unions are
another good source and will often offer equivalent rates. If you don’t qualify
for an ordinary credit card, investigate secured credit cards that use a savings
account as collateral.
• Annual Percentage Rate (APR) – As a student your interest rates will probably
range between 10-18% percent. This is higher than the rates an established borrower
would receive but better than the rate for people with poor credit histories.
Read the APR offer closely to see what the terms are for the introductory rate.
The lower the rate, the less your credit spending will cost.
• Annual Fees – Most standard credit cards don’t come with annual fees. Some
premium or reward cards, such as airline mileage cards, charge annual fees. Look
at the small print disclosure to see if your card has a hidden annual fee. Also
keep an eye out for excessive late fees, transaction fees and over-limit fees.
• Grace Period – The grace period on a credit card is the amount of time between
when you make a purchase and when interest applied to the purchase. For many
cards, the interest-free grace period is around 25 days. Cards with small or
non-existent grace periods will cost you more.
History – Once you start using your new card, it’s a good idea to check your
credit history online to see if the account is being recorded correctly. Your
credit reports from TransUnion, Equifax and Experian should have accurate information
about the account’s name, open date, balance, monthly payment and credit limit.
You can learn more about your credit profile online at TrueCredit. After a few
months you’ll want to check again to make sure your payment history is being
reported properly. Late payments can damage your credit score for up to 7 years
and can lead to problems receiving new credit in the future.
Philosophy – The lethal student combination of a limited income and a lot of
opportunities for spending makes it easy for young credit card users to end up
in deep debt. Using your new credit card to pay a regular monthly expense (like
gasoline or cable) is a good way to start, you’ll know what to expect from your
bill and can pay it in full each month. Having a conservative credit philosophy
will help you graduate with your debt under control.