It might be tempting to constantly swipe your first credit card, but if you’re serious about managing credit you have to be responsible and avoid maxing it out.
Credit card companies offer many credit cards especially aimed at students, including the Wells Fargo Cash Back College Visa, U.S. Bank College Visa, and the Discover It for Students. But a 2014 federal study found 72 percent of students pay their card balances in full each month and overall, students carry $171 in monthly credit card charges on average.
Will you need a co-signer?
Before signing up for a card, you should find out whether you’ll need to get your parents or another person to co-sign for the card. There are age restrictions associated with credit cards. Credit card companies are only allowed to issue a credit card to a student under 21 if an adult co-signs the application or the student can prove they have enough income to repay the debt.
If the co-signer’s credit score is higher than yours, you’ll be able to get a lower interest rate on the card. On the downside, a co-signer will share responsibility for the card. So if you fall behind on payment, their score will suffer too.
What’s an over-limit fee?
When you open a credit card account, you’ll have the option to select an “over-limit” fee. This feature lets you exceed your credit limit, but you will be charged a fee. If you decide against the fee, the purchase will simply be declined if you max out your card.
The Credit CARD Act says fees charged for over-limit purchases must be “reasonable”; the problem is, the card issuer determines what’s reasonable. So think carefully about if you really want this option. By law, the company can only charge an over-limit fee once each billing cycle. You have the option to reject the over-limit fee program at any time online, by phone or letter.
Interest rates: What you need to know
When you start shopping for a credit card, don’t forget to pay careful attention to the interest rates. If you’re planning to make major purchases and will need to temporarily carry a balance, for example, you should consider a low-interest credit card.
First-time card holders should know that credit card companies can raise rates on existing cards. If you’re more than 60 days late making a payment, you can expect interest rates to take a jump. Also, note that many companies offer introductory rates that can spike in a little as six months. Before you sign up for a card, take a close look at the interest rate, now and in the future.
Pay attention to your mail. The card company must warn consumers before any changes take effect. The card issuer must let you know about pending rate increases 45 days before the change happens and must also let you know you have the right to cancel your account. The company must also review the account every six months.
A credit card can help you get through lean times in college, but you’ll want to use it wisely. You don’t want to start post-school life with a big credit card debt, especially if you already have a student loan. Even if you aren’t a business or finance major, credit cards will be one of your most important tests.
Students and Credit. Georgia Consumer Protection Unit. http://consumer.ga.gov/consumer-topics/students-and-credit
Using a Credit Card. Federal Trade Commission. https://www.consumer.ftc.gov/articles/0205-using-credit-card
Can a Card Issuer Consider My Age When Deciding Whether to Issue a Card to Me? Consumer Financial Protection Bureau. https://www.consumerfinance.gov/askcfpb/20/can-a-card-issuer-consider-my-age-when-deciding-whether-to-issue-a-credit-card-to-me.html