College is a period of firsts. It's the first time many students are away from home for an extended period of time; it's the first time students get to choose their own coursework; and it's the first time many are left to their own devices with respect to taking care of themselves.
College is also the first time many apply for a credit card. Although at this point in life, it's important for people to begin building their credit histories, it's just as important for them to carefully consider the variety of credit card options before committing to a card. All cards are definitely not equal, and college students should look for cards that will help them start building a solid credit foundation.
So how can college kids find a card that's fit for them? Consider the following tips.
* Steer clear of cards with annual fees. Some credit cards charge annual fees, regardless of whether or not a consumer ever makes a single purchase. Since many cards' interest rates are similar, try to find one that doesn't charge annual fees.
* Find the best annual percentage rate. While interest rates are often similar, some cards have a better annual percentage rate, or APR. As attractive as low interest rates can be, be especially cautious with cards that promise zero percent interest for the first six or 12 months after signing. That's because such cards typically have very high APRs. This isn't a monthly fee, but rather a finance charge referred to as an annual rate. For college kids, whom history suggests struggle to pay their balances in full each month, a high APR could add considerably to the cost of having a credit card.
* Don't overdo it. A 2009 report from Sallie Mae titled "How Undergraduate Students Use Credit Cards" found that half of college undergraduates had four or more credit cards in 2008. No college student needs that many credit cards. If at all possible, college kids should stick to one card and one card only. The card should only be used to help build a credit history and in the case of an emergency. Students who need four cards are either finding themselves in far too many emergency situations or harming themselves by charging too many purchases to plastic.
* Be skeptical of reward cards. In theory, reward cards are excellent. The more a consumer purchases, the more rewards points they accrue. Those reward points can then be used toward a host of things, including airline miles. However, college kids typically do not make much money, and reward cards are really only beneficial to people who charge a lot of their purchases. Such people can typically afford to do so, whereas the average college kid cannot. Reward cards are better suited for men and women with full-time jobs and not so ideal for college kids without steady streams of income.
* Don't be late. If payments are not made online, they should be mailed at least a week in advance of the due date. A history of late payments can quickly mar a credit report. Even if only the minimum payment is possible, make sure that payment is made on time.
* Borrow from mom and dad, not the credit card company. Credit card companies will lend cash to their customers. These loans are called cash advances. But unlike borrowing from mom and dad, accepting a cash advance from a credit card company typically comes with a heavy interest rate, making it much more worthwhile to call home instead of taking a cash advance.
Getting a credit card is an important step for young people. Students should just be careful and ensure that the credit card ends up building a solid credit foundation instead of digging a significant financial hole.