Once you turn 18 and become an adult, you’ll likely be bombarded with credit card offers. College campuses are full of credit card companies looking to take advantage of young adults new to the world of credit. You might be tempted by these offers, especially because of the freebies.
But is that free shirt worth an interest rate of 25% or a $100 annual fee? While it’s not a bad thing to want to build credit with a credit card, there are many cards to choose from. The ones vying for your attention on the college quad are likely not the ones that will offer you the best interest rates or rewards.
Credit card use in college can affect your credit score for the rest of your life. Therefore, it’s important to find the right card for your needs. Ready for your first credit card? Follow these tips.
Not all credit cards are created equal.
Each card is different in some aspect. There are different issuers and variable rates. Some offer higher credit limits, others have annual fees. Some offer airline miles or cash back rewards. Don’t go with the first one you offered. Instead, discover your options and choose one that fits your needs. Take the time to shop around for a good deal.
Don’t choose a card with annual fees.
On top of the interest, you’ll be paying a fee just to have the card in your wallet. Annual fees typically range from $49 to $99 a year. If you’re on a limited income – like most college students - this can seem like a lot of money. Plus, if you’re only making the minimum payments, you could end up paying interest on your annual fee, so you could get hit twice with fees. There are plenty of cards out there that have no annual fee, so choose one of those.
Credit cards help build credit (good or bad).
College is a good time to get your first credit card because you’ll eventually want to buy a car or a house. Making on-time payments can help in this regard. It shows creditors that you are trustworthy and responsible. If you don’t pay your credit card on time, future creditors will see you as a risk. They may not approve you for loans, and if they do, you’ll be paying a higher interest rate. Your good or bad credit will impact your life. Employers may even choose not to hire you because of poor credit. If you choose to get a credit card, remember that your actions will stay with you for a long time.
Credit cards are not free money.
Credit cards allow you to delay payment on purchases. The appeal of credit cards if that you can make a huge purchase and pay it off over time. They are not free passes to spend as much as you want. You must eventually pay back what you charge, so don’t use your credit card for ahuge shopping spree or go over your limit. You’ll regret it when those shoes you bought on sale for $100 end up costing you $500 after interest.
Pay on time every month.
Adding onto the tip above, be sure to keep track of when payment is due and make sure to pay at least the minimum amount. You can schedule automatic payments online for added convenience. If you can, try to pay off the balance each month so you don’t accrue interest. If you can’t do that, then try to make multiple smaller payments or pay more than the minimum amount.
Getting a credit card isn’t so easy anymore.
In the past, virtually everyone qualified for a credit card. The CARD Act, which passed in 2009, made it harder or college students to get a credit card. That’s because in order to qualify, you must now show proof of income or have someone - like a parent – co-sign for you. Many college students don’t have regular income and most parents aren’t willing to co-sign on a credit card for their kids, so this makes obtaining a credit card difficult. But it’s not impossible. Even if you have a part-time job, you can still qualify.
Check your credit report every year.
Every year, you’re entitled to receive one free credit report from TransUnion, Equifax and Experian. This report shows what creditors are reporting, so if you have missed payments, they will show on here. Make sure you look over this report carefully because errors do occur. If you see accounts you don’t recognize, then you may be a victim of identity theft. Go to www.annualcreditreport.com to receive your free reports. You can also use a free credit monitoring service such as Credit Karma to receive alerts when new accounts are opened. You can also get your FICO score there. It’s updated weekly.
Owning a credit card is a huge responsibility.
You need to make sure you make payments on time. Even one missed payment can affect your credit score. Be responsible with your spending and you’ll see your score rise. This will open the door to low interest rates on personal loans, cars and mortgages.