If you’re ready to get an education and learn financial management, now’s the time to pick the right credit card and start your credit history. Most college students are focused on the books and making the grade, and personal finance is the furthest thing from their mind. There are sound reasons to get a credit card while in college, but this doesn’t imply applying for any type of credit card. Here are seven simple tips to help college students pick the right credit card.
Understanding your personal needs will help you pick the right credit card. For example, are you looking to build your credit history, or do you simply want a cash card? A prepaid credit card will not build your credit history and it’s nothing more than a debit card. Of course there are benefits to prepaid credit cards. You don’t have to submit an application or get approved. And since you can only spend what you deposit on the card, you avoid high credit card balances.
If you have a checking or savings account, visit your bank and ask about credit card options. Many banks have credit cards for college students, as well as secured credit card options for people looking to build a credit history. Both have easy, flexible requirements. But with a secured credit card, you’re required to pay a security deposit - typically less than $500.
Don’t apply for any random credit card. Read the fine print carefully and check to see if the credit card charges an annual fee. Many secured credit cards charge an annual fee, which varies depending on the bank. Annual fees are common and you shouldn’t discount a particular card simply because of this. Still, it pays to shop around and make sure that you’re getting a good deal.
The credit card interest rate is another big thing to consider. The interest rate essentially determines how much you pay to use the card. The higher your interest rate, the higher your monthly payment, and the longer it takes to pay off your debt. It goes without saying that you want the credit card with the lowest rate. Shop around, compare cards and go with the cheapest offer.
If only the interest rate and annual fee were the only costs to worry about. If you’re applying for a secured credit card, there may be other fees, such as a monthly maintenance fee and a set up fee. Secured credit cards don’t offer the most attractive terms, but approvals are practically guaranteed. Before applying for a secured credit card, contact at least three separate banks and inquire about fees.
To benefit the most from getting a credit card in college, make sure that your creditor reports to the bureaus on a monthly basis. If your credit activity isn’t updated regularly, you won’t build a credit score, which pretty much defeats the purpose of obtaining a credit card. This isn’t a huge problem, as many creditors do report monthly, but it doesn’t hurt to get confirmation.
Don’t settle for a no-frills credit card. If you plan to use your credit card on a regular basis and pay off the balance each month, go for a credit card that offers a rewards program. In a nutshell, you will earn points or cash back on every dollar you spend. Stockpile your points and then redeem them for gift cards, merchandise, statement credit, cash and more.
Don’t wait until graduation to start looking for a credit card. The four years that you’re in school is the perfect time to establish credit and perfect your financial management skills. By the time you finish school, you’ll be ready to purchase your first home or buy your first car - on your own.
What features do you consider important when shopping for a credit card?
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