Avoid the Pitfalls of Student Credit Cards
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by: barrywaters
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Word Count: 499
Now that you have started college, credit card companies are going to chase you with an ardor you only wish you could see from your fellow students. As far as the credit card companies are concerned, you are a dream date: young, with an unmarked credit report and (they hope) bound less naivete about credit cards. They expect you to accept a credit card with an attractively low introductory rate, run up huge bills, then owe them tons of cash when the introductory period ends and your interest rate skyrockets. Lets make sure that doesnt happen.
The first tip is not to let the big, bright "0 percent interest rate" on the front of the brochure fool you. That is the introductory rate. After a short period, usually just six months, it ends, and now you have to pay the credit cards real interest rate. Student credit cards typically have somewhat higher rates, currently running from about 13 percent to about 20 percent, with default rates that shoot up to about 25 to 31 percent if you pay a bill even a day late. The new, higher interest rate applies retroactively to all your purchases, so even if you charged an item when your interest rate was zero, at the end of the introductory period you must pay 13 percent (or 19 percent, or 30 percent) until your entire balance is paid off. When your interest compounds, you might end up paying two or three times the original cost of an item.
The key is to choose a card with the lowest possible regular interest rate, then spend as though you were already paying that rate on your purchases. The fine print or the chart on the back of the form will tell you a credit cards real interest rate. The standard purchase annual percentage rate (APR) and the standard cash advance APR are what you are looking for. These are the rates you will pay after the introductory period ends. Compare all the student credit card offers you have received, paying no attention to the introductory rates and all the frequent flyer miles or other frills. The only numbers you care about at this stage are the standard purchase APR and the standard cash advance APR.
Once you have found the credit cards with the lowest regular interest rates, read the rest of the fine print for catches like annual fees and high default interest rates, and use it to narrow your selection. Now that you have a few good offers with low regular interest rates and no hidden drawbacks, you can sift through the rewards packages and choose the student credit card that offers the best frills as well as the best core terms. Have fun with your new credit card and start laying the groundwork for your future credit... on your terms. References Credit cards | Credit cards | Secured credit cards |
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