In the United States, credit is a common part of life. Young people are exposed to it all the time, but many do not truly understand the responsibility and maturity involved with having credit. Student credit cards, then, can be a powerful tool in helping achieve this understanding.
Within the first few weeks of arriving on campus, college students in the United States will have received several new credit card offers. Obviously, some of these offers will be better than others, but what is most important is to find a card that can help a young student who does not have many assets to achieve a positive credit record. This is important because credit is necessary for buying large items like a car or a house.
There are several things you have to remember when applying for student credit cards
- Credit cards carry different interest rates for purchases, balance transfers and cash advances
- Some credit cards offer competitive introductory rates which could revert to much higher rates later
- Not all credit cards have annual fees (and there are always other fees)
These are the three most important things for new credit card holders to remember.
Interest Rates of student credit cards
Obviously, the first thing you are going to look at when applying for a student credit cards is the interest rates. If this is your first (or your student’s first) credit card, then you probably won’t care so much about the balance transfer option. However, if the card has a low interest rate you should make sure that you also know what the cash advance rate is too. It’s nice to be able to get extra cash when you need it, but sometimes the interest rate isn’t worth it.
Similarly, many cards will offer extremely low interest rates for an introductory period. This rate can be as low as 0% in some cases and can last as long as a year. Of course, this is not the norm, but there are many cards that offer very low rates for 3-6 months. These are great cards to take advantage of if you can budget paying them off before the introductory period ends. They are a great tool for helping students who need to buy books or outfit a new apartment.
The key to a low introductory rate is budgeting. If the interest rate only lasts six months, then the card really only benefits you for that period of time. Of course, learning how to budget is a skill that many people don’t even learn until they have a responsibility like paying a credit card or phone or utility bill.
Annual (And Other) Fees
Annual fees are tricky. Some cards have a low interest rate but balance that out with a higher annual fee. Others have a low interest rate or none at all. For some people, particularly students who might only need a student credit card for emergencies, it is important to weigh the cost of the annual fee against the interest rate. If you are only going to use the card in emergencies, then you may not have a problem with paying a higher interest rate and no annual fee. However, if you plan to use the card to buy books every quarter, you might prefer that the interest rate is relatively low to make it easier to manage.
Credit cards also have a lot of other fees that many people forget about. For first-time credit card holders these unknowns can creep up and really make a mess of things. Therefore, be sure that when you apply for a student card you also understand how all of the fees work. There could be fees for:
- Balance transfers
- Foreign exchange
- Cash advances
- Balance inquiries
- Late payments
- Missed payment
Yes, even if your credit card has a low introductory rate on balance transfers, for example, the credit card company can still charge a fee for the processing. Because of the recent FAIR Credit Act and new regulations, though, there are only so many fees that can be charged to any one card during any billing cycle. Learn about these fees to determine which card is best suited to you.
College students are constantly bombarded with new credit card offers. While many of these offers can be beneficial to new students who want to establish a solid credit history, it is important to understand exactly what the benefits are and how each student credit card differs.