| Student Credit Card Advice |
| By Credit Federal |
Published
10/13/2008
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Credit Card
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Smart College Student Credit Card Advice
According to a recent U.S. Public Interest Research Group study, two out of three college students have at least one card. We are all aware of the many benefits a credit card offers to college students (convenience instead of carrying cash, filling temporary cash shortages, online purchases, etc), but if abused a credit card can become a nightmare of debt.
Used properly, a student credit card can help build credit, which leads to:
- Lower rates on auto loans and mortgages after graduation
- Lower insurance premiums, because many insurers use credit information to determine their prices
- Better apartment, because many landlords check credit scores
These tips can help you get the most out of your student credit card:
Student Credit Card Application - The first advice is to choose the best credit card for you right from the start. Beware that University and alumni associations earn huge commissions by steering students to certain credit card companies. So just because it's recommended by your college, it may not be the best card for you.
For example, a card recommended by your school may brag it offers a low initial interest rate, but it might quickly leap to 20% or higher after a few months. And subprime credit card issuers will hit you with large upfront and annual fees that can eat up most of the cards' initial available credit limit.
Be smart... Do your own research. Check out these Student Credit Cards, and consider cards that offer:
- No application fee or other upfront fee
- No annual fee
- A decent interest rate (around 14% to 17% is fair at time of publication)
- Reporting to all three credit bureaus (unless the card reports to all three credit bureaus, it's not helping to build credit. Major card issuers; like American Express and Discover, report to all three bureaus.)
Limit your credit card applications to one-at-a-time, and consider sticking to holding one card at a time. If you have more than one credit card, you may become tempted to abuse the purchasing power and find yourself overboard with debt.
Read the fine print. Each credit card will have a packet of information about your card, including benefits and fraud protection. Make certain to pay particular attention to:
- The interest rates for purchases, for balance transfers and for cash advances.
- The fees (if any) for purchases, balance transfers and cash advances.
- The fees for paying late or charging beyond your credit limit.
- The credit limit, which initially may be low. To protect against going overboard with debt and/or facing over-limit charges, never charge over 30% of your credit limit.
- The closing date of your statement period. It's the amount you owe on that date that's reported to credit bureaus, and that should be paid off in full every month.
- The due date and time? Like the statement closing date, the due date may vary by a few days from month to month. You'll want to make sure your payment gets to the issuer a week or so before this date and time.
- The customer service 800 number. Save the number on your cell phone so you can easily check your balance, ask questions and resolve any problems.
Here are some things you want to avoid doing:
- Taking cash advances. Your credit card issuer will try hard to get you to take a cash advance from them. They'll even send you blank checks; without your asking, which you can fill out and cash. Their cash advances; however, have high interest rates that apply immediately and there's no interest-free grace period on cash advances.
- Paying late. You'll face a late fee of around $30 to $40 as well as possibly a higher interest rate since you'll be considered a potential high risk.
- Missing a payment completely. You'll destroy your credit score, because just one skipped payment can knock 100 points off your scores, and the damage can linger for years.
- Charging near the credit limit. The less you charge the better, but your scores will really take a hit if you let your charges exceed 80% of your limit.
- Paying the monthly minimum. You should always payoff credit card charges in full, month-to-month. Doing so keeps you out of debt buildup and saves you money by not having to pay interest charges. See the example below of how quickly a $1,000 charge can cost you an additional $300+ in interest:
Example: If your credit card charges 16% interest, and you have a $1,000 balance and you pay only $30 per month (and even if you don't add new charges), it will take you 45 months (nearly 4 years) to payoff the $1,000 charge, and will cost you $331.36 in interest charges. Learn more about our free credit card calculators.
Here are some things you should do routinely:
- Checking your balance before adding new charges. Many card issuers offer a quick automated phone system or online account for checking balances and payments.
- Paying via automatic payments. Instead of facing late fees (and possibly higher interest due to making late payments), take advantage of technology and setup automated payments. You can likely get your credit card company to debit your total balance from your checking account each month. If not, consider a routine payment amount that will satisfy the monthly minimum, to give you extra time to go online and make additional payments each month to pay off the bill.
If you use your student credit card wisely, not only can you graduate with little or no credit card debt, but also with a good credit score.
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