Credit Card and Spending Information For Students and others new to credit.
Despite all the recent hype regarding students and credit card offers, if you haven’t begun to use credit, it may actually be a good time to check out current credit cards available to you and begin establishing a credit history.
However, proceed with caution. It’s important to keep in mind that regardless of how important a credit score is in today’s financial world, having thousands of dollars of debt to repay after graduation is a bad idea, especially when you’re also paying off student loans and trying to make ends meet on an entry-level salary.
Choosing a credit card
Today’s students are presented with a wide array of credit card choices—cards with low annual percentage rates, cards with no annual fees, rebate cards, and so on. So how do you choose one? Before selecting a card, be sure you know which credit terms and conditions will apply to the account. The Truth in Lending Act is a federal law that promotes the informed use of consumer credit by requiring disclosures about its terms and cost, using specific terminology. In short, the Truth in Lending Act allows the student to “shop around.”
Qualifying for a credit card
If you are at least 18 years old, or 21 if a permanent resident of Puerto Rico, and have a regular source of income or savings, you’re on your way to qualifying for a credit card. But you’ll still have to demonstrate that you are a good credit risk. The proof is in your credit history, which lists the amount of credit you have received and if you’ve paid it back on time.
If you are a full-time student, make sure to include that information on your credit application. Creditors often assign full-time students lower initial credit lines to start their credit files. As you advance through college and graduate school, you can always request increases to your credit line.
Building your credit history
So how do you establish your credit history? Even if you’ve never applied for credit before, there are ways to start building a good credit history:
- Open a checking account or savings account, or acquire a debit card. These do not create your credit file, but responsibly managing these accounts will indicate that you have money and show something and demonstrate responsibility.
- Apply for a department store credit card, gasoline card or a major credit card, and use it responsibly. Pay each bill on time and in full if possible (see below).
- If you don’t qualify for credit on the basis of your own credit file, ask someone with an established credit history (like a parent or other family member) to co-sign your application. The co-signer promises to pay your debts if you don’t.
- Be responsible. Because credit cards make it easy to purchase things now and pay later, it’s easy to lose track of how much you’ve spent. Make sure you pay all your bills on time, and only get the credit cards you need—don’t get a card just because the issuer is offering a discount on purchases.
- To establish and maintain good credit, pay at least the minimum amount due on each account every month, and pay on time. Allow five to seven business days for payments made by mail. Better yet, take advantage of on line bill pay services if possible.
- Use your credit card wisely, and you’ll have a very beneficial financial tool. Use it carelessly, and you’ll run up credit card debt you can’t afford. Nothing is easier than charging small things here and there, only to find yourself with a large bill you can’t pay.
- Keep close track of your spending. Get in the habit of watching your banking activity daily through online banking-monitor your account activity on a regular basis and arrange to make electronic payments.
Below you can get familiar with some common credit card terminology to help you navigate through the process:
Some credit cards may have an “annual fee” they apply to your card. Please see the terms and services agreement on your card carrier for more information.
APR stands for Annual Percentage Rate. APR is the amount of interest you are going to pay on your card annually. Your first credit card will always tend to be a high APR rate. The same goes with bad credit as well. The better the credit score, the lower your APR typically is.
A balance transfer is when you take funds from one credit card and transfer it to another. Sometimes banks will offer promotional rates to get you to switch.
This is the limit that you are allowed to charge. If you charge more than this amount, penalty fees usually are applied or your purchase may be declined.
A Grace Period is the time the customer has to pay off their balance. Grace period can range anywhere from 20 to 30 days. If a payment isn’t made after your grace period is up, late fees and a higher interest rate can be applied.
An Interest Rate is the rate the borrower must pay to borrow the credit. This is paid on the ongoing balance.
The minimum payment is the amount you must pay each month to avoid late fees or hurting your credit score. This number is a percentage of your outstanding balance and is relatively low to your overall balance most of the time. Once again, this depends on the card issuer.
These are the fees a credit company usually charges you. These can vary from going over your credit limit to paying your bill past its due date. Penalty Fees will vary from card to card.
Secured Credit Cards
A secured credit card is a card that usually requires a deposit to be kept as collateral. Typically the deposit is the credit limit. Secured Credit Cards are ideal for people with bad or no credit.
Unsecured Credit Cards
An unsecured credit card does not require collateral for approval and applications are approved based on your credit history, and earnings.