SAVING FOR COLLEGE

Which Credit Card is Right for You?

Many college students are graduating with more than just a degree. They're also leaving school with credit card debt. If you're a college student, does this mean that you should rip up every credit card offer that comes your way? Not necessarily.

If credit cards are not used responsibly, possessing them can seem like a mistake, but having good credit provides considerable benefits in today’s credit-oriented society.

Once you graduate from college, you will find that having a good credit score is important for many things: renting an apartment, getting a car loan or mortgage (especially one with a good interest rate), and finding a job (some employers check credit reports when making hiring decisions). Even many insurance companies check credit scores to determine what rates to charge their customers.

Having a credit card is often a good way to start building your credit score. Credit cards can be easier to get than other types of credit, like car loans, personal loans, and mortgages, and generally, as long as you pay off your balance in full each month, you will not have to pay any interest.

When deciding what credit card to apply for, here are some things to consider.

Annual percentage rate (APR)

This is the interest that you are charged on any balance that you carry-over, or do not pay off each month. If you pay off your balance in full every month, the APR is not important, but it doesn’t hurt to look for a card with a low APR just in case.

If the card comes with a teaser rate – a low or no interest rate for a temporary period of time of at least 6 months – don’t forget to check what the interest rate will be once the teaser rate expires. It could be much higher than for other cards.

Credit limit

The credit limit is the maximum amount you can borrow at any given point in time. Having a higher credit limit is better for your credit score, but if you are worried you will overspend, it may be a good idea to look for a card with a lower limit.

Grace period

A grace period is is the window of time, usually 21 to 30 days, between the cut-off of your billing cycle and your payment due date.

 Normally, if the balance is paid in full by the end of the grace period, no interest is due on the new charges (although be aware that it only applies if you paid off your balance in full the previous month).

This, however, doesn’t apply to cash advances, where interest is applied immediately.

Fees

Most cards charge a fee for a late payment or going over the limit (if you “opt-in” and allow the creditor to process over-the-limit transactions). Some also charge an application or annual fee.

It is best to avoid these, but if you are new to credit, you may not have a choice. However, if you use your card responsibly for a year or so, you may be able to have the annual fee reduced or eliminated.

If you are under 21, you cannot get a credit card unless you can demonstrate you possess an independent means of repaying balances (such as a job) or have an adult co-sign for you.

What should you do once that card is in your hand?

While having credit is needed to have a good score, careless use will only hurt your score and cost you money. Before using your card, think about if what you are purchasing is necessary and affordable.

Continually charging more than you pay each month only leads to increasing minimum payments and, potentially, interest costs.

If you financed college with student loans, you will also have to eventually start making student loan payments (on top of rent, a car loan, credit card debt, or whatever other expenses you may have), and people often over-estimate their expected first job earnings.

It is important to make your payments on time each month

If you make your payments late, not only will you possibly incur late fees and a higher APR, but your credit score (and your co-signer’s, if you have one) could be damaged as well if the payments are late by 30 days or more. Set aside a specific time each month to pay your bills.

Another good idea is to set up payments online. This way, you do not have to worry about your payment getting lost or delayed in the mail. If you decide to pay by mail, leave plenty of time for the creditor to receive the money before the due date.

Try to avoid paying the bill last minute. Many creditors can charge a fee for using an “expedited service” by a service representative of the creditor.

Things to remember

When you are thirty, you probably do not want to still be paying for purchases you made when you were twenty.

If you do not manage your cards responsibly, the costs of meals out with friends, movies, and whatever else you bought on your cards will hang around long after the fun is gone. 

Graduating college and starting your adult life is an exciting time. Avoid letting it be saddled by credit card debt.