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Credit Card Tips

Are You Ready For a Credit Card?

Many college students already have a credit card, but if you don't, you can be sure there will be many opportunities, offers, and even high pressure tactics to get one once you arrive on campus.

Many credit companies set up tables in the common areas of college campuses to encourage students to sign up for credit cards. Often, they give away trinkets such as T-shirts, water bottles, frisbees, free food, coffee mugs, and more in exchange for having you fill out an application.

Unfortunately, many of these credit cards are a bad deal for students. They frequently have high annual fees, high interest rates, and other harsh terms written in the fine print. Also, the temptation to get all of the free trickets can result in apply for many cards at once, which can hurt your credit rating. According to a study conducted by the U.S. Public Interest Research Group (PIRG), students who obtain credit cards at campus tables have higher unpaid balances than those who do not. Carrying high, unpaid balances is one of the quickest ways to incur too much debt and fall behind in payments.

Why do Credit Card Companies Target Students?

Interestingly enough, students are a good credit risk for the credit card companies, despite the fact that they often do not have jobs and are also borrowing student loans. Research has shown that student borrowers are valuable customers because they tend to stay loyal to their first card, continuing to make purchases for many years to come.

The Advantages of Having a Credit Card

Like loans, using credit cards can help you build a positive credit history. This can enhance your ability to receive a private student loan, buy a car, rent an apartment, get a job, and eventually, try to buy a house. Of course, there are other advantages to having a credit card including:

- Security in emergencies;
- Reduced need to carry cash or checks, reducing chances of loosing it or having it stolen; and
- Enhanced personal responsibility and independence.

However, only one national card with the "Visa," "MasterCard," or "Discover" stamp is necessary to receive these benefits.

Before You Get a Card: Are You Ready for a Credit Card?

As a student and an adult, you will have to decide for yourself if you can handle the responsibility of a credit card. They are easy to get but not so easy to manage, especially if you end up with a high, unpaid balance on which interest is accruing, but payments are not being made. According to the PIRG study, of the 79 percent of surveyed students who use credit cards for multiple purposes, only 13 percent reported limiting credit card use to emergencies.

When making your decision about a credit card, ask yourself the following:

- Do I need a credit card?
- Can I afford a credit card?
- Will I be able to pay off my balance each month?

If you decide to apply for a credit card, be a smart consumer and shop around. Look for a company that offers the following:

- Low interest rates or finance charges (combined, they are called APR)
- Low or no annual fees
- A grace period (time during which no payments are due) before finance charges are posted (look for at least 25 days, preferably more)
- Other benefits including purchase warranties, free gas, airline miles, etc. Most students won't charge enough to benefit from airline miles, so for the most part, you will benefit most from cash back and cards that offer a percentage off of your purchases.

After Getting the Card: Helpful Hints on Using Credit Cards

Credit cards can be helpful in emergencies or if you are able to pay off the balance each month, but be wary! Credit cards can also get you into trouble. Here are some helpful hints on using credit cards:

Fees
- Watch out for carrying balances. Some cards charge 20% or more in interest. (Interest is usually called "Finance Charges" on your statements.) Try to pay off as much of the balance as possible every month
- Look at your statement carefully and call the company right away if you have any questions.
- There is usually a large finance charge (often 3% of what you borrow, with a minimum charge) for cash advances and interest begins accruing as soon as you take the money out, not after the next statement closing.
- Be aware of annual fees. Many times you are charged $50 or more just to have the card. Dump these cards in favor of ones without annual fees.
- Watch out for introductory offers! When you receive a credit card offer in the mail with a low rate, it may expire in three or six months. Note when and by how much the rate increases after the "introductory offer" expires. You may not remember when it expires, but the card company will.
- Think about your purchases. If you are not able to afford the purchase now, chances are you won't be able to afford it in a month when the credit card bill comes in! Don't borrow against your future if you don't have to, especially for unnecessary items.

Problems After Getting Your Card: If you get behind on your payments

Many things can happen that may end up affecting your ability to pay your bills while at school, or after school. If you find yourself falling behind on your payments, contact a credit counselor or at least get in touch with your lender and tell them about your situation. Lenders are very interested in getting their money back, but they want to be sure a payment plan doesn't break you financially, resulting in them not getting what they expected back. They will likely be more flexible about your payment options than you might think.