College is a great time to get your first credit card. It’s relatively 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 card wisely and keep your spending under control, you can learn the basics of finance while avoiding debt and establishing a solid credit history. You’re going to need a credit card anyway once you leave school, so why not take advantage of the opportunity to establish credit now. Once you’re out of school, your good credit will save you a lot of money and a lot of hassle.
If you aren’t already being bombarded with credit card offers, you will be. Here are a few things to consider when comparing credit cards.
1. Rates
Sure, that 0% introductory rate looks like a great deal. And it is, at least until the introductory period ends or the credit card company decides to hike your rate. More important than your introductory rate is your Purchase APR. APR stands for annual percentage rate, and is basically the cost of having a balance on your card. Your Purchase APR is the interest rate the credit card company charges you on credit purchases after the introductory period is over. This isn’t the only rate, however. There are usually different (and higher) rates on cash advances and balance transfers. Lastly, take a look at the Default APR. That exorbitant rate is what the credit card company will charge if you don’t pay your bill. Scary, isn’t it? This is one reason why it is so important to stay current with your bills.
2. Fees
There can be a lot of costs associated with a credit card, and not all of the costs are immediately apparent. Read the terms to find out what fees are associating with signing up for and possessing the credit card. Is there an application fee or a processing fee? Both? You can probably find a credit application without either of these fees, so why bother paying more if you don’t have to?
Check to see if there is an annual fee associated with the credit card. Sometimes there are annual fees up to $100, just for the convenience of having the card. Again, you can probably find a credit card offer with no annual fee. Keep in mind that a card with an annual fee may have a lower interest rate than a card that has no annual fee. If you plan on paying off your balance in full each month, choosing a card with no annual fee is going to save you money. If you plan on carrying a balance from month to month, it may be better to choose a card with a lower rate and an annual fee. Bust out the calculator (or the Excel spreadsheet) and figure out if a lower rate is still going to save you money after the annual fee.
3. Grace Period
Many credit cards have a “grace period.” This is the amount of time that new purchases remain on your account before the card issuer begins to charge interest. If you have no outstanding balance on your account, and you buy a CD for $15, finance charges will not accrue on that new balance until after the grace period is over. If you plan to pay off your balance in full each month, a long grace period can save you a lot of money on finance charges. Check to see if there is a grace period on any card you’re considering. Also, keep in mind that grace periods may apply only to purchases, and not to balance transfers and cash advances.
4. Rewards
Take a moment to carefully consider the rewards program associated with a credit card offer. Is it really going to save you time or money? Does it offer a real value to you? Not all rewards programs are going to be useful to college students. If you think a rewards program will be beneficial, read over the terms to figure out what you have to do to qualify for rewards and what you could do to lose them. Rewards programs may not be as straightforward as advertised. Don’t be distracted by a fancy, complicated rewards program. Find what works for you, and place a higher emphasis on rates and fees.
5. Fine Print!
I cannot stress this enough: you HAVE to read the fine print. It may be boring and take a while to read the fine print, but it is worth your time and effort. All the terms are laid out there in the application, and by submitting your application you are legally agreeing to those terms. You have to know what you’re getting into. Make sure you have read and understood the terms and conditions before you submit an application. If you’re having trouble understanding the terms, call the company issuing the card and ask for an explanation. They have people who are paid to answer your questions. If you are polite with them it can be a very easy and informative phone call.
To be sure, you don’t have to read the fine print on every card you consider. You can use factors such as fees and interest rates to weed out undesirable offers. Then you only have to read the fine print on applications you intend to submit.
6. Card Issuer
It’s important to pick the right company with which to do business. Are you going to be dealing primarily with a large national company, or with a smaller local company? Is your card going to be widely accepted, or will it limit where you can make credit purchases? It may be most convenient to try to get a credit card through the bank where you already have an account. That way, you can manage your banking and credit through a single institution. Credit unions and smaller card issuers, like community banks, may be more lenient with the “rules” of the credit agreement and will likely have smaller fees than larger card issuers.
Make sure that the card issuer you choose reports to one of the three major credit reporting agencies. This is important because you are establishing credit. If your card issuer does not report to the credit reporting agencies, all of your careful credit management will not be rewarded with good marks on your credit report. Credit reporting is essential for the college student looking to establish credit.
It is also important to find out the company’s policy if you’re having trouble paying your bill. Certainly no one plans for that kind of situation, but it is a very important thing to consider. A helpful policy can save you a lot of money, a lot of stress, and a lot of bad news on your credit report. If the company’s policy is not apparent on the credit card offer or on their website, do not be afraid to call and ask. Again, the company has people who are paid to explain these things. If you are polite and friendly, you can learn a lot.
7. Online Convenience
When it comes to using the internet to manage various aspects of one’s life, college students are more adept than any other demographic. We’re already signing up for classes online and keeping track of friends using Facebook. Some of us are even monitoring and managing our bank accounts online, (and if you aren’t already, you should be). College students can use their internet aptitude as a tremendous advantage in responsibly managing their credit cards. Many card issuers will let you keep track of credit expenses and view statements online.
You can make payments from your computer without ever having to run off to the post office or deal with unorganized papers and envelopes. If you have a checking account that you track or manage online, your bank may offer free online bill pay. If you don’t see this option available, call and find out for sure. While I wouldn’t recommend going completely paperless (because it’s important to have a paper record if you ever have a dispute with your card issuer), the lack of online account management options would be a deal-breaker for me and should be for any college student looking for a credit card. Pick a card that you can manage online.
Now that you know what to look for, it’s time to take a look at some offers. You can start checking out the offers available through the advertisements on this site. Bankrate.com also has a credit card search engine and a page where you can compare student credit card offers.
There are a lot of creditors on the market competing for YOUR business. With so many offers available, you don’t have to settle for a high rate or annual fee. Don’t just apply to the first offer. Shop around and see what you can find. If you’ve got someone on the phone or a sales representative in person, don’t be afraid to ask for a better rate. Many times, the first rate you see is not the best rate the creditor is willing to offer.
Take advantage of this opportunity to establish credit. It is easy to get credit while you’re in school, but after you leave school, lenders will be much more hesitant to do business with you if you don’t have any credit history. What does this mean? First, it means that without a credit history, you will face more difficulty obtaining financing. When you do get credit, you will be paying much higher finance charges because your rates will be higher. If you buy a house or a car, higher finance charges could add thousands of dollars—even ten of thousands—to the total cost. As you can see, establishing good credit now will be tremendously beneficial for many years to come.