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Having a credit card in college can simplify life and open up a new world of purchasing power. However, as many students discover the hard way, credit cards can be a friend or foe, and you decide which. For people just starting out building their own financial identity, credit cards, when used right, can open many doors down the road—or ensure that they get slammed shut. For students applying for credit cards, here are 7 tips to make sure you get best student credit card and make the most of it.
1. Look to the future. Before applying for a student credit card, keep in mind that credit cards are not just a tool for spending; they are a vital key to your financial future. Taking out one or more credit cards will help build your credit history; and in today’s economy, a strong credit history carries more importance than ever. Laying the foundation for a solid credit record now will provide you with far better financing prospects down the road when it comes to borrowing money for a car, a house, or even starting a business.
2. Stay clear of 0 percent APR balance transfer offers. Many student credit cards advertise 0 percent APR introductory offers, which typically expire after three to six months. While it’s tempting to take out a 0 percent APR balance transfer to get a little extra cash, resist the temptation, unless you are positive that you can pay off the balance before the introductory period expires,. Debt not paid off by the end of the 0 percent APR introductory months will accrue interest at the regular rate, which can run as high as 23.99 percent.
3. Look for cards with low purchase APRs. Purchase APRs on student credit cards range quite a bit, from e.g. 12.99 to 23.99 percent. When selecting a credit card, look for the cards with the lowest purchase APR to ensure that you pay the least amount of interest on balances carried forward on the card.
Unfortunately, for new credit card applicants it’s not as easy to get approved for the credit cards with the lowest interest rates; card issuers tend to reserve the best credit card deals for people with some previous credit history. However, start applying for the lowest interest student credit cards; and, if you don’t get approved, try for a higher interest card. Once you’ve used that card responsibly for six to nine months, apply again for the low interest credit card. The credit record you’ve built in the meantime may be sufficient to get approved the second time around.
4. Consider rewards credit cards. Students rewards credit cards can offer extra perks, such as cash back bonuses or rewards points, which can be redeemed for plane tickets, iTunes purchases, or travel. However, rewards credit cards also often come with higher interest rates, so for cardholders carrying a balance from month to month, the accrued interest will quickly surpass rewards earnings.
5. Pay credit card bills on time. Once you receive a student credit card, the focus shifts to good credit card management. While paying phone bills or utility bills late from time to time is no big deal, there are numerous negative consequences from paying credit card bills late. Firstly, paying even one day late will result in late fees, which run as high as $39. Secondly, regular payment habits are one of the most important factors credit rating agencies take into account when evaluating your credit record. Payment history makes up about 35 percent of a person’s FICO score, so paying on time is essential to build a solid credit history.
6. Keep credit card balances low. To avoid paying interest, ideally pay off the credit card balance in full every month. If you have to carry a balance forward, keep it below 10 percent of the total credit line, and never above 30 percent. This may seem counterintuitive to new cardholders, since obviously, you took out a credit card to make use of the credit line. However, carrying a balance forward from month to month can easily start you down the slippery slope to mounting credit card debt. Just as bad, keeping balances above 30 percent of the credit limit will detract from your credit score, and hurt your financial prospects in the future.
7. Plan ahead. To ensure that you always have enough money to pay your credit card bills, keep money in a checking or savings account. Keep track of credit card charges, so you don’t spend more money than what you have in your accounts. Also keep in mind that unexpected expenses will crop up; so add a cushion to your budget for emergencies and incidentals.
