The first day on campus. You’re mind is full of wonder and anticipation of what the next four years will be like as you solidify adulthood.
Odds are, this is the first major foray into life without mom and dad making most of the decisions, and looking over your shoulders (your time at summer camp doesn’t count).
This is true when it comes to finances as well.
With all of this freedom, it can be tempting to get a credit card and then go a little crazy (cue Prince’s Let’s Go Crazy…).
Before you take the plunge, though, here are 5 things on credit cards a new college student must get into their heads:
1. It’s Not “Your” Money
The available balance on your credit card does not represent “your” money. It is, in actuality, someone else’s money.
It’s important to remember that when you swipe your credit card, you are borrowing money. That money needs to be paid back as quickly as possible in order to minimize the amount of interest you end up paying on the loan. If you pay it back when your bill is first due you avoid interest and it’s basically a free loan.
Which leads us to…
2. You Can Avoid Interest By Paying Your Balance in Full
If you want to avoid paying interest on your credit card, you need to pay the balance in full and in time each month. Most credit card issuers offer instructions on how you can pay your bill without worrying about interest.
What it comes down to, though, is that you need to pay your bill on time each month. As long as you aren’t carrying a balance from month to month, you shouldn’t have to worry about paying interest. A big part of this is making sure you only charge what you can afford to pay off at the end of the month. This is a hard thing for many out of college, no less students first starting college. Get into the habit of controlling your spending now.
3. You Might Need a Co-Signer
The Credit Card ACT of 2009 requires that those under the age of 21 receive extra scrutiny. Specifically, those who are not 21 need to have a co-signer, unless they can show that they have adequate income to handle the payments later on. Many college students don’t come to campus with jobs, and so they may not have the income necessary to get a credit card without a co-signer.
Typically the co-signer will be mom or dad. This means if you don’t pay your credit card bills then mom and dad are responsible. It also means you could be wrecking their credit score if you aren’t paying on time.
4. You Need to Watch Out for Fees
It’s really important that new college students have an idea of they fees they’ll be laden with if they don’t keep up with their payments, or engage in responsible behaviors. There are fees for paying late, and some credit cards charge fees for going over the limit with your accounts.
Not only can these fees be as hefty as $25 to $45, but they can also result in your current issuer raising interest rates. Pay attention to the terms and conditions, and understand what actions can result in these fees. You will want to avoid activities that result in extra fees.
Oh, check this out — Those fees you’re getting hit with? If you aren’t paying off your balance in full then those fees will be earning interest against you too. Fees+Interest = a Snowball of Debt!
All is not grim though. Credit issuers are starting to gear cards with student’s behavior in mind.
5. Credit Cards Can Be Great Financial Tools
While there are things you need to be wary of with credit cards, the reality is that they can also be great financial tools.
You can use credit cards to get benefits like rewards and cash back. When used responsibly, they can be your ticket to cash back, free merchandise, and other perks.
And sometimes you just don’t have the cash on you. A credit card is handy when you have to buy a few hundred dollars in books at one time (or even one few-hundred-dollar book — man college textbooks are expensive!).
Credit cards are also the fastest way to build a credit history. If you want to build good credit, the judicious and responsible use of a credit card is one of the best ways to go about this.
Here are a couple of factors about your credit score that you can start on early: length of credit history and payment history.
When you get a card in college you start the clock on the length of your credit history. The longer you have credit, in good standing, the better. You also start the clock on your payment history. Get a card as a freshman and you can have four years of great payment history under your belt by the time you graduate (of course the opposite is true too). After graduation you might just find yourself with excellent credit.
You do know your credit history does more than just get you loans, right? Your credit history can be pulled when you look for an apartment or even when interviewing for some jobs.
Credit cards can be a great tool for college students but they have to be used wisely. It’s real easy to go crazy with that first credit card and get yourself into trouble. Student loan debt is bad enough. Don’t graduate college with credit card debt as well.
What other things do new college students need to know about credit cards?
Here’s a list of Student Credit Cards for you to compare.