What Every Student Should Know About Credit Cards
You have seen credit card solicitors on campus, near eateries and bookstores. They brandish free t-shirts and magazine subscriptions if you sign up. They tell you that you can now afford clothes, food and vacation expenses.
But can you?
According to USA Today.com, in the fall of 2006, about 17 million college students had the opportunity to open a credit card account (Chu, 2006). These students can literally sign up for a credit card in between classes. It only takes about five minutes to fill out the application.
But before you sign up, there are some things you need to know. First of all, credit cards can be a good opportunity. Online payments often require a debit or credit card. Also, a student card is a good way to start building your credit. When you apply for a car loan or attempt to rent an apartment, your credit history will be examined. If you are responsible with your payments, you can end up with good credit in the future, and this can save you a lot of money. But it’s a totally different story if you are not good with payments.
College students are often targeted by credit card companies for several reasons:
- College graduates tend to earn more than people who do not attend college,
- Many students can fall back on their parents to help them with financial troubles,
- Getting clients while they’re young is a good way to establish early customer loyalty, and
- There are always new students on campus every year (Chu, 2006).
On the other hand, college students are more likely than older consumers to be strapped for cash and to be inexperienced with how credit works. These facts, however, have not stopped 3 out of 4 students from obtaining a card. In 2004, more than 40% of cardholding students had at least 4 credit cards. The average outstanding balance incurred by a student in 2004 was about $2,169 (“Undergraduate,” 2005). Students may find it easy to rack up debt because they face certain expenses for the first time in their lives, such as books and school supplies, housing, food and clothing.
Students can find themselves in trouble due to low-paying jobs during college and slow acquisition of employment after graduation. There may also be compounding debt with increasing interest and various penalty fees, such as over-the-limit and late charges. Also, student loan debt is at its highest interest rates in recent years.
In addition to shaky income and the ease of accruing debt, many students sign up for cards without being properly informed. Many credit card solicitors do not explain the terms and conditions and the credit card agreement usually arrives in the mail after the company approves the application. This one-sided process is not in the cardholder’s best interest.
Tips on Racking Up Good Credit
Although it can be easy to get carried away with credit card debt, responsible usage and on-time payments should help students understand the importance of obtaining good credit. You can use the following tips to protect yourself from ending up with a mountain of credit card debt:
- Research and shop around for a card, instead of signing up with the first solicitor. Credit card companies are in fierce competition with each other. You are likely to find a better deal if you research rather than sign up for a card on campus. Many student cards carry 3 to 4 interest points more than the average card (13% for fixed rates, 14% for variable), but interest rates vary from 9% to 23%.
- Read the fine print if you’re thinking of signing up. Ask about conditions and features of the card. Learn the lingo (see below).
- Use your credit card only for emergencies and necessary purchases (books and other school supplies).
- Do not use your credit card for impulse purchases.
- Pay your bills on time, and try to pay off the balance whenever you can to avoid revolving debt!
5 Vocabulary Terms of Credit Cards
The best way to prevent credit card troubles is to choose a card with fair features and terms. To understand what you are reading in the agreement, though, you need to know credit card language.
- APR (annual percentage rate) – Your yearly fixed interest rate. You divide this number by 12 to determine your monthly interest rate. However, an APR can change over time and a single credit card can have multiple APRs, so be careful.
- Finance charge – Your interest plus any additional fees.
- Annual fee – A yearly membership fee of $20 to $100, regardless of the balance you carry. This feature is issued by some credit card companies.
- Late payment fee – A charge that can go as high as $39 if you are even one day late making a monthly payment.
- Cash advance fee – A fee imposed whenever you use a “cash advance” feature on a card. It allows you to charge cash or a check off of your account. Unlike ordinary credit card purchases, cash advances have higher interest rates, an additional fee that is 2 to 4% of the amount advanced and no grace period (interest begins accruing immediately).
Sources:
Chu, Kathy. “Easy credit can mean long-term hardship for college students.” USA Today.com. October 1, 2006. Retrieved November 21, 2006 from http://www.usatoday.com/money/perfi/2006-10-01-college-credit-usat_x.htm.
“Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends by Nellie Mae.” Nellie Mae. May 2005. Retrieved November 21, 2006 from http://www.nelliemae.org/library/research_12.html.
