When comparing student credit cards, ask the following questions:
1. What is the APR (Annual Percentage Rate) charged on the card? Most student credit cards come with great 0% APR introductory offers, but these typically expire in as little as six months. While it’s best to pay your card off in full every month, many students find that they do carry a balance. If that is likely to be the case for you, pick a card with a low annual percentage rate (APR). It’s not uncommon for interest rates to vary from 12.04% to 18.05%, so you will save quite a bit over the long term by going with the card with the lowest interest rate.
2. What is the introductory offer? Some cards offer a 0% APR for balance transfers, some a 0% APR on purchases, and a few offer this rate on purchases, balance transfers, and cash advances. If you have a balance on another card you may wish to transfer it to a new card. Think about how you mainly will be using the card—for purchases, or make a balance transfer from another card. Then choose the card that best fits your needs. As always, it’s prudent financial sense to take cash advances only in an emergency.
3. Which other benefits does the card offer? Many credit cards award you additional benefits, such as cash back or reward points on purchases. These can accumulate into additional perks over time. Again, choose the rewards that best match your interests.
4. Is the APR a fixed rate or a variable rate? Many credit cards come with a variable rate APR, which means that the APR is linked to a financial index. The rate will go up or down as this economic indicator changes, raising or lowering the interest rate on your account. A fixed rate will not change with the financial markets.
5. What are the penalty fees? What are the penalty fees for making a late payment or exceeding the credit limit on the card? Read the Terms and Conditions carefully in order to understand the charges and your responsibilities as an accountholder.
6. What is the default rate and what triggers it? If you are late on a payment or miss a payment altogether, credit card issuers reserve the right to convert your standard APR to a higher default rate. Default rates typically are exceptionally high, often in excess of 30%. Some agreements also let card issuers raise the rate if you default on another loan. Read the fine print to find out what would trigger a default on the card agreement and be sure to avoid any actions that would cause you to be in default.
