Financial Advice

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Credit Cards & College Students

Many college students are graduating with more than just a degree. Due to the proliferation of credit card companies on college campuses they are also graduating with credit card debt. If you are a college student does this mean that you should rip up every credit card offer that comes your way? Not necessarily. If credit cards are not used responsibly possessing them can seem like a mistake, but having good credit provides considerable benefits in today’s credit-oriented society.

Once you graduate from college you will find that having a good credit score is important for many things – such as renting an apartment, getting a car loan or mortgage (especially one with a good interest rate), and finding a job (employers commonly check credit reports when making hiring decisions). Even many insurance companies check credit scores to determine what rates to charge their customers. Getting a credit card is often a good way to start building your credit score. Credit cards can be easier to get than other types of credit, like car loans and mortgages, and as long as you pay off your balance in full each month you will not have to pay any interest.

When deciding what credit card to apply for avoid being swayed by any freebies, like t-shirts, bags, or the latest “it” gadget, the companies are handing out. Instead, note and compare the important features of each card, including:

  • The annual percentage rate (APR). This is the interest that you are charged on any balance that you carry over, or do not pay off, each month. If the card comes with a teaser rate – a low or no interest rate for a temporary period of time - do not forget to check what the interest rate will be once the teaser rate expires. It could be much higher than the interest rates of other cards.
  • The default APR and conditions. The default APR is the interest rate you are charged if you meet specific conditions, such as making a payment late or going over your credit limit. The default APR can be significantly higher than the regular APR. Some cards have a universal default clause, in which your interest rate can be raised if you fall behind on payments for any of your bills.
  • The grace period. A grace period is the number of days you have to pay off your balance before you are charged interest on your new purchases. Most creditors will only give you a grace period if you paid off the balance in full the previous month.
  • The fees. These can include annual, late, and over-limit fees, as well as fees for not carrying a balance or using the card.

Which card has the lowest APR? Which ones do not charge annual fees or have a universal default clause? These features are much more important than whatever the company is handing out on the day you apply for the card.

What should you do once you get your credit card? While having credit is needed to have a good score, careless use will only hurt your score and cost you money. Before using your card think about if what you are purchasing is necessary and affordable. Continually charging more than you pay each month only leads to increasing minimum payments and, potentially, interest costs. When you graduate from school you may not have much money to make credit card payments. If you financed college with student loans you will have to start pay those (on top of rent, a car loan, or whatever other expenses you may have), and people often do not earn much in their first jobs.

It is important to make your payments on-time each month. If you make your payments late not only will you incur late fees and a higher APR, but your credit score will be damaged as well. Set aside a specific time each month to pay your bills. If your credit card company allows you to make your payments on-line consider taking advantage of it. This way you do not have to worry about your payment getting lost or delayed in the mail. If you decide to pay by mail leave plenty of time for the creditor to receive the money before the due date. Try to avoid paying the bill last minute on the phone – many creditors charge a fee for this service.

When you are thirty you probably do not want to still be paying for purchases you made when you were twenty. If you do not manage your cards responsibly the pizza, television, or whatever else you bought on your cards will be long gone before your bills are. Graduating college and starting your adult life is an exciting time – avoid letting it be saddled by credit card debt.

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