What Students Should Know About Credit Cards
When you go to college, chances are you’ll get bombarded with credit card offers. Many times, sign up tables will be set up on college campuses offering you a free T-shirt or free meal just for signing up.
When budgets are tight (and the tuition bill comes due, plus a new version of your favorite video game is being released) it’s easy to think of credit cards as the answer to your money woes. In fact, a 2013 study by Fidelity Investments found that the average college student graduates with $3,000 in credit card debt.
The decisions you make now regarding credit cards can affect your life for many years to come. So, here’s what you should know before signing up for a credit card.
1. Good (or bad) credit counts.
Having a credit card isn’t a bad thing because it helps you build a credit history. But your credit (good or bad) will impact your life. In college (or graduate school), it may impact your ability to get a private student loan to cover tuition, room and board costs.
After you graduate, employers may request permission to run a credit check before they decide to hire you. When you want to rent an apartment, your landlord will run a credit check to see if you’ll be a good tenant. When you want to buy a house, your bank will use your credit score to determine if they’ll lend you the money, how much and for what interest rate.
2. Some cards charge an annual fee.
Having a credit card isn’t “free.” You still have to pay for what you buy, and some cards may charge you an annual fee (from about $50 to more than $100 per year) just to have the card in your wallet. If you do sign up for a credit card, avoid ones that have an annual fee.
3. Shop around.
Be wary of credit card companies that push the card on you—offering freebies for signing up or using other high-pressure sales tactics. By shopping around, you can compare credit cards online to make sure you get the best credit card deal for you. When shopping around, look for low APRs (annual percentage rate—aka the amount of interest you’ll pay if you don’t pay off your balance in full each month).
4. Don’t charge more than you can pay (or more than your limit).
Again, having a credit card doesn’t give you “free” money. You must pay your bill each month. And you can’t spend more than the card’s credit limit. If you don’t pay your bill (or you exceed the limit), you’ll have to pay interest and possibly additional fees. That means the $200 dress you bought for a campus party, could end up costing you $224.80 and take you 15 months to pay off (assuming your interest rate is 18 percent and you pay the minimum balance of $15 per month). The debt can really add up fast.