For most of the college-going students, holding their first credit card feels like a rite of passage, after all, it opens the door to their financial independence and growth. But, one thing that many may not know is that these credit cards are meant to help them establish their credit for the future post-graduation opportunities.
That said, it is essential for students to understand the commonly used terms in the credit world, and also how to select the best issuers. Above all, they should learn how to use their credit cards wisely to avoid getting into debt and ruining their credit history.
Choosing the first card
A good credit card should present features that are ideal for college students. For instance, it should have low, or even no annual fee, and no late fee for first late payment. It should feature some added perks like cash back, travel benefits, and a range of ways for one to redeem their rewards. Some credit cards let students use their rewards at merchant sites to pay for dorm room essentials, textbooks and more.
Understanding the terms of the credit card
Fees: annual fee is perhaps one of the biggest things that a new cardholder should avoid when selecting a credit card. Some student credit cards have annual fees, while others don’t, so students should go through the entire terms and conditions before committing to a provider.
Annual Percentage Rate (APR): this is the amount of interest that a cardholder is charged for borrowing, and is expressed as a percentage on a yearly basis. Since issuers have different APRs, students should take time to compare. Some offer 0% or low introductory APR, which is a great way to start the credit card journey. However, students should also look at how much interest they will pay after the introductory period has elapsed.
Rewards: Everyone loves rewards, and when it comes to student credit cards, those with rewards are seemingly the most enticing. But to be sure it’s not a trap; students should ensure that they understand how it works. For instance, some cards provide 1 to 5% cash back rewards on specific things but come with restrictions like earning limits, quarterly enrolment or expiration dates.
Using the credit card
A rule of thumb when using credit cards is for one the charge only what they can afford. Using the card on things that are way expensive is perhaps the easiest way to get into debt, reason being, one is building a balance that they won’t be able to offset soon. Some credit card providers offer a range of tools to help manage spending, which is ideal for those who overspend.
Most of the credit cards offer some grace periods on purchases, meaning one is able to avoid interest charges. But there’s a catch, the cardholder has to offset their monthly balance in full, every time, otherwise, the grace period on purchases is lost, and interest starts to accrue until the balance is cleared.
Responsible use of credit card while at school can help students to set a strong financial foundation for the post-graduate life. It’s therefore imperative that they establish and maintain a positive credit history throughout their school life.