Credit Card 101 for College Students
These days it is pretty difficult to navigate through life without at least one credit card. Renting a car, booking a hotel, or making airline reservations all require that you provide a credit card number. You also need to establish a good credit history so that you can finance big purchases later on, such as a car or your first home. Most younger people can obtain a credit card if they follow a few easy steps. Making sure you don't get into trouble with credit cards requires some careful planning and monitoring.
Establishing Credit
Most college students are offered credit cards while they are still in school. Credit card companies assume that college students are being helped by their parents, who can be responsible for any debt incurred by their kids. If you don't already have a credit card, and you are not in school, you will need to establish a credit history.
Apply at your bank or credit union for a major credit card (such as MasterCard or Visa). If you have a history with these institutions, they may be willing to grant you a card with a small limit. That limit will be increased when you prove that you can pay your bills on time. If you are denied at these institutions, you will need to establish credit somewhere else. You can get a free copy of your credit report if you are ever denied a credit card. The instructions on how to do this will come with your denial letter. Check that report to see if there are any negative entries on it. You may have been denied just because you have no previous history.
You can also try getting a gasoline or department store credit card. These are usually easier to get and give you a chance to show that you are a responsible credit card user. Taking out a small loan from your bank or credit union and then paying it off on time is another option.
A secured credit card is one where you provide the bank with a deposit— for example, $500—that can be drawn upon to pay your charges. Be aware that secured cards are sometimes used by people who have bad credit just so they can have a card. Check with the bank to find out if this is reported as part of your credit score because it can appear suspicious to other companies offering credit.
Once you have established that you can be trusted with a credit card of your own, you will be surprised to find out how many companies want you to get one. Be careful, however—having too many credit cards is risky and doesn't help your overall credit score. It's better to use one or two cards wisely.
Using Credit Responsibly
Now that you have a credit card of your own, you may be tempted to go out and buy a lot of stuff you could never afford before. One word of advice: Don't!
Credit is a great convenience, but it is very easy to overspend and end up with a credit card balance that you can't afford. Credit card companies make their money by charging you interest on these cards. Interest rates vary but can be as much as 30%, so it is best to pay off your entire credit card balance at the end of each month.
Ideally, you should never buy an item that you can't afford to pay for immediately. If you cannot pay the entire balance, try to pay more than the minimum payment required. Paying only the minimum stretches out the length of time it takes to pay off your balance, and can add hundreds or even thousands of dollars to your debt.
Event paying off your expenses each month doesn't mean you will avoid other fees. Many credit cards require an annual fee. This is particularly true for cards that have a very low interest rate or that provide other benefits, like airline miles. If you make a late payment, you may be charged an additional fee or your interest rate may increase. Read the fine print carefully on any credit card application. Watch out for cards that have very low introductory rates and then switch to much higher fees.
Credit Card SOS
If you are already having trouble paying credit card debt, don't panic. There are several steps you can take to get that balance down. No matter what, try to continue making payments and, if possible, try paying more than the minimum. If you can transfer the balances to lower interest cards, this may save you in extra interest payments. You may think about getting a low interest loan from a credit union to pay off the debt more quickly. However, you will need to plan how to pay this debt off. It is no good to simply substitute one debt for another.
If you are in trouble, you may want to think about consolidating your credit card payments through a debt consolidation company. They usually charge a fee to contact all your creditors and to create a payment plan with which you can live. Be sure to work with a reputable organization if you decide to go this route. The National Foundation for Credit Counseling (NFCC) Link opens in a new window(https://www.nfcc.org) is a nonprofit financial counseling organization with member offices in every state. You may want to check out their site for more information debt consolidation plans in general, as well as options that may be available through the NFCC.
Filing for bankruptcy should be avoided if possible. Bankruptcy information can stay on your credit history for up to 10 years and can make it can make it difficult to buy a home or making another large purchase. It can even stand in the way of getting a new job if your prospective employer does background checks that include credit history.
Workplace Options. (Reviewed 2019). Credit cards 101. Raleigh, NC: Author.