Should students have credit cards in college? The short answer is: NO!
BUT, there are reasons a college student should have a credit card. First, a credit card, if handled well, can help you build a credit history that will assist you later when you are applying for a car or house loan. Of, course if you don’t handle it well, a credit card can spell disaster. A history of debt is hard to remedy and can follow you for a long time. Second, having a credit card can help you learn to budget. You should set a budget and not overspend. Buy only what you can afford, which means you should be able to pay your credit card bill in full each month. Also set a spending limit which should not exceed 30% of your card limit per month. Third, a credit card comes in handy for an emergency. Stuck at an airport overnight with no cash? Need a book for a course and have no money?
If you are a college student and are thinking of getting a credit card, be sure to educate yourself. Know what the following terms mean.
APR: This is your annual percentage rate charged to your card for any balances that are not paid and are carried over from one month to the next. You should find a card that has an APR no higher than 16%.
Fees: Some credit cards have fees that come with their use. Late fees, transfer fees, annual fees, cash advance fees, even fees for application and processing can be charged. Most fees you can avoid by abiding by the rules and not overspending. That means paying on time and not taking out cash you don’t have. The other fees can be avoided, too, if you shop well for card. No reason to have a card with an annual fee or one that charges you for your application and processing.
Rewards: Some cards actually reward you for spending money, which is a great feature as long as you do not carry a balance. You can get anywhere from 1% to 3% cash back. It’s like they pay you for making it easier for you to buy. But, be careful. Sign up bonuses might have eligibility conditions. Other cards might only give you bonuses for buying certain things, not all things. There also might be limitations on the rewards or expirations dates.
College students should also be smart about using a card. Here are a few tips.
• Know that if you are under 21 you will have to provide proof of income or have a co-signer. Be prepared.
• If you are denied a credit card, be aware new federal law allows you to see your credit score for free.
• Always pay your minimum balance on time, even if you can’t pay in full. If you are one month late, even a day late, you can be charged a fee of up to $35. It’s good to set an alert on your cell phone or on your computer for the due date time so you won’t forget.
• It may be best to get a credit card that has balance alerts. They will notify you when you have reached the spending limit you set.
College may be just the time to learn about money, as long as you are wise, smart and responsible.