Every week, Financial Aid will give out easy and quick tips to help college students to better save, invest or spend their money. This week: Picking a credit card.
My first credit card was the Hello Kitty Platinum Plus Visa — because it was cute. Now you probably shouldn’t make your credit card decisions based on who has the cutest design. But picking a credit card can be daunting, so this week we’re giving you a basic primer on all you need to know. If you’re not sure why you should get a card in the first place, check out last week’s Financial Aid to find out.
Eligibility
As students, many of us have limited or no credit history, so we are not eligible for all the credit cards our parents always seem to receive in the mail. If you are ready for your first credit card, look at cards specifically geared towards students. These cards expect a limited credit history and a low yearly income, so your application has a better chance of being accepted. Credit.com also has a pretty comprehensive list of student cards, and so does BankRate.com, but a Google search for “student credit cards” will also allow you to explore your options.
Understanding the key terms
Does your credit card application look like it’s written in a foreign language? Here’s a quick guide to understanding the jargon of credit cards:
- APR (Annual percentage rate) — yearly interest rate you will be charged if you do not make full payments every month.
- Intro APR — same as APR, but this lower rate is only available during the first few months of getting your credit card.
- Annual fee — the yearly fee for having the credit card
- Co-signer — someone (usually a parent) that enters into the credit agreement with you and agrees to pay back your debt if you cannot
- Balance-transfer fee — fee charged when you transfer debt from one credit card to another
- Cash-advance fee — fee charged when you withdraw cash at an ATM with your credit card
- Cash back — a rewards feature that gives you a percentage rebate on your credit card purchases
A full list of definitions can be found at the Federal Reserve’s glossary of credit card terms. They also have a cute Flash graphic that defines some of the terms.
Things to know
There are many tricks and treats inherent in each credit card you apply for, so make sure to understand exactly what you’re getting into before you apply. Here are some important things to consider:
1. Intro vs. Regular APR
Many credit cards offer you a 0 percent Intro APR for the first 3, 9, or sometimes 12 months. So during the introduction period, even if you only make minimum payments, you will not be charged any interest for your owed balance. But make sure to read the fine print. When you apply for a card, your regular APR is usually a range (ex: 13.99 percent – 19.99 percent) and credit card companies retain the right to adjust your APR at-will. If, during the intro period, you suck at paying money back, they will spike up your regular APR to the highest rate possible. Not a desirable outcome.
2. Rewards
Credit card rewards operate on a point system that gives you points for every dollar you spend. You can then trade in those points for gift cards, magazine subscriptions, hotel points or airline miles, or even cash back. Almost all cards give you the option of having one percent cash back on all your purchases (that’s $10 for every $1000 you spend), but different cards offer different rewards. For example:
- The Citi mtvU card gives you up to 2000 points per year for having a good GPA.
- The Discover Student More card gives you 5 percent cash back on different categories of purchases depending on what month it is (January is travel and restaurants).
- The Capital One Journey card only gives you the normal 1 percent cash back, but if you pay your bills on time, you get an extra 25 percent bonus on the cash back you do earn each month.
What rewards work for you depends on your spending habits. So think about what you spend the most money on, and find a card that rewards you for it. However, remember that if you don’t pay off your bill each month, the interest you accumulate will cost you much more than the benefits you reap from your rewards.
3. Know your rights
Last year, the Federal Reserve passed two sets of new rules (click here and here), in accordance with the Credit CARD Act of 2009, that govern credit card policies. Here are some highlights:
- No inactivity fees — sometimes you just don’t want to use your card. Now you can’t get charged for it.
- Explanation of rate increase — if your APR increases, your credit card company must tell you why
- Sending you bills early — companies must deliver your bill at least 21 days before it’s due
Take a look at the Federal Reserve’s list of credit card protection laws for more details.
In the end, no matter your APR, or who gives you which rewards, charge responsibly and you will just fine. If you’re already using a credit card and loving it, comment below and tell other students what card you have, and why you love it!
Now that you have a credit card, let’s make sure you’re getting the most from the money you have in the bank. Next week, Financial Aid will show you that not all savings accounts are created equal, and the bank you’re using right now is probably not the one you should be using.