Getting a Credit Card in College: What to Know
For many students, getting your first credit card during college is a mark of financial independence and responsibility. However, it only takes a basic internet search of credit cards to see that a wide range of options exists, and the rules and stipulations can be kind of confusing. Like any other financial decision, you should be educated on the key aspects before you sign up for something. A credit card, when used sensibly, can be a great way to establish credit while you’re young and earn you some great rewards while you’re at it.
Be financially responsible
Being on your own in college requires financial planning and responsibility. Read the article “How to be Financially Responsible in College” to find out ways that you can make your college experience a financially wise one, especially when it comes to living within your means.
Understanding the basics
When browsing through credit cards offers for the first time, you will come across a lot of terminology that might be unfamiliar. Understanding the basics can go a long way when making an informed decision. Here are a few of the most common terms you will come across. For a larger list, be sure to check out creditcards.com’s credit card terminology glossary.
- Annual fee – Many credit cards charge a yearly fee for credit card use, but it’s common that credit cards will waive that fee for the first year.
- Annual Percentage Rate (APR) – Knowing your card’s APR is a key detail to know before signing up. If you keep an unpaid balance on your credit card, this is the interest that will accrue on top of your balance. As a promotional offer, some credit cards will offer 6 to 12 months of 0% APR, which is a great cushion for a beginner to have. It can be helpful at the beginning of semester if you have to make large purchases, because you have a longer window of time to pay off your balance before interest starts accruing.
- Credit line – This is the maximum amount you can charge to your credit card, as determined by factors such as your annual income and credit score. It’s important to know what your credit limit is in order to avoid any fees if you overcharge your card.
- Minimum payment – This is the minimum amount you have to pay each month if you carry a balance.
- Co-signer – If you do not have an income or sufficient credit to open a credit card, many credit card companies will allow you to open an account with a co-signer who has more established credit. If you fail to make payments, the co-signer can be held liable for any outstanding due charges.
Rewards: get the most out of your credit card
Earning rewards from your credit card purchases can be a wonderful perk — but only if you completely pay off your balance each month. If not, accruing interest might end up costing you more than the value of the rewards you gained. Here are a couple of the most common rewards you are likely to come across:
- Cash back – This is a popular credit card perk, which offers cash based on a certain percentage of what you spend (often 1-2%). For example, if your credit card offers 1.5% cash back, this will equate to $1.50 back for every $100 you spend. It may not seem like much, but over the span of months or years of using your credit card for every day purchases, this can add up to a pretty nice payoff!
- Travel points/miles – This reward is perfect for those who like to travel or find ways to cut back on the cost of a trip (e.g. hotel, airfare, train tickets). This works similar to cash back rewards, but instead the points you earn can be used against the cost of travel-related expenses. For example, if your credit card offers $100 of travel credit for every 10,000 points accrued, and you have a point balance of 25,000, that equates to $250 off the cost of a travel-related purchase. Many credit cards offer a sign-up bonus after a certain amount of money is spent in the first few months. For example, 20,000 airline miles once you spend $2000 in the first 3 months.
The best credit cards for students
There are several credit cards out there that are designed with the college student in mind. Here are a few lists put together by credit card review websites that are up to date and allow you to compare each credit card’s rewards and perks:
- NerdWallet.com’s Best College Student Credit Cards, 2015
- NerdWallet.com’s more extensive list of student credit cards
- Time.com’s 4 Best Credit Cards for College Students
- Student Credit Card Review and Comparison
Photo credit: Natloans / Flickr