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3/29/2008 - Credit Card Tips
Are You Ready For a Credit Card?
You may already have a credit card, but if you don't, you can be
sure there will be many opportunities to get one once you arrive on
campus.
Many credit companies set up tables in the common areas of college
campuses to encourage students to sign up for credit cards. Often, they
give away trinkets such as T-shirts, water bottles, frisbees, coffee
mugs, etc. in exchange for having you fill out an application. Sound
easy? It is, but think twice before you do it.
Unfortunately, many of the credit cards offered on campus may not be
a good value for students. According to a study conducted by the U.S.
Public Interest Research Group (PIRG), students who obtain credit cards
at campus tables have higher unpaid balances than those who do not.
Carrying high, unpaid balances is one of the quickest ways to incur too
much debt and fall behind in payments.
Why do Credit Card Companies Target Students?
Surprisingly, students are a good credit risk, despite the fact that
they often do not have jobs and are also borrowing student loans.
Research has shown that student borrowers are valuable customers
because they tend to stay loyal to their first card, continuing to make
purchases for many years to come.
The Advantages of Credit Cards
Like loans, using credit cards can help you build a positive credit
history. This can enhance your ability to receive a private student
loan, buy a car, rent an apartment, get a job, and eventually, try to
buy a house. Of course, there are other advantages to having a credit
card including:
- Security in emergencies;
- Reduced need to carry cash or checks; and
- Enhanced personal responsibility and independence.
However, only one national card like a VISA or a MasterCard is necessary to receive these benefits.
How Credit Cards are Billed
Unlike repayment on a traditional loan, such as a student or car
loan, credit cards do not allow you to spread the amount you owe over a
fixed period of time. Instead, you are required to make a minimum
monthly payment, which is the smallest amount you can pay and still
meet your cardholder agreement (the terms you agree to when signing up
for the card).
The minimum payment is usually 2 percent of your outstanding
balance. Unfortunately, by paying only the minimum each month instead
of paying off your entire balance, your debt will continue to grow.
Many credit card companies also charge late fees (usually 2 percent of
the outstanding balance), and higher interest rates on cash advances.
So, Are You Ready for a Credit Card?
As a student, you will have to decide for yourself if you can handle
the responsibility of a credit card. They are easy to get but not so
easy to manage, especially if you end up with a high, unpaid balance on
which interest is accruing, but payments are not being made. According
to the PIRG study, of the 79 percent of surveyed students who use
credit cards for multiple purposes, only 13 percent reported limiting
credit card use to emergencies.
When making your decision about a credit card, ask yourself the following:
- Do I need a credit card?
- Can I afford a credit card?
- Will I be able to pay off my balance each month?
If you decide to apply for a credit card, be a smart consumer and shop around. Look for a company that offers the following:
- Low interest rates or finance charges (combined, they are called APR)
- Low or no annual fees
- A grace period (time during which no payments are due) before finance charges are posted
- Other benefits including purchase warranties, free gas, airline miles, etc.
Credit cards can be helpful in emergencies or if you are able to pay
off the balance each month, but be wary! Credit cards can also get you
into trouble. Here are some helpful hints on using credit cards: Fees
- Watch out for carrying balances. Some cards charge 20% or more in
interest. (Interest is usually called "finance charges" on your
statements.)
- Fixed rates aren't always fixed! A credit card company can change the rate by informing you 15 days before changing the rate.
- Look at your statement carefully and call the company right away if you have any questions.
- There is usually a large finance charge for cash advances and
interest begins accruing as soon as you take the money out, not after
the next statement closing.
- Be aware of annual fees. Many times you are charged $50 or more just to have the card.
- Watch out for introductory offers! When you receive a credit card
offer in the mail with a low rate, it may expire in three or six
months. Note when and by how much the rate increases after the
"introductory offer" expires. You may not remember when it expires, but
the card company will.
- Think about your purchases. If you are not able to afford the
purchase now, chances are you won't be able to afford it in a month
when the credit card bill comes in!
If you get behind
- Cut your recreational expenses.
- Call your credit card company. They may be willing to work out a repayment schedule with you.
- Develop a budget and stick to it! Everyone makes mistakes, but
credit will follow you and hurt your eligibility for mortgages or loans
down the road.
- Look into credit counseling services. Many offer educational
programs or individual counseling sessions to help you get back on
track.
Establish and maintain a positive credit history
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