Student Credit Cards
Throughout college, credit card companies are going to court you
like nothing else. You're their dream customer: a brand-new consumer
with no experience and no money, in a position where the entire
world is urging you to consume. If you choose wisely, you'll finish
college with a good credit card and an excellent foundation for
future credit. If you choose the way the card companies want you
to choose, you'll finish with a high-interest credit card, lots
of debt, staggering monthly payments, and the credit card company's
love and attention for the rest of your life. Here are the things
you need to look for to come out your way, and not the credit card
company's.
The card's brochure is going to offer you a mess of information
upfront, but I guarantee you that what's most important is going
to be the least obvious. Ignore the offers of frequent flyer miles,
money off on your books, and free gas, and turn to the back. You're
looking for the interest rate. No, not the "0% APR" (annual
percentage rate) that's plastered across the front. Read the fine
print or the boring black-and-white sheet tucked in with all the
colorful promo material, and find the real interest rate.
Interest Rate
Student credit cards usually have middling-high rates. As of November
2005, several deals I checked offered rates of 16.99% APR, which
is not terrifying—24% to 30%, that's terrifying—but
not low, by any means.
But wait, you say. You're holding a deal in your hand right now,
and it's offering you 0% APR. What's up with that?
Notice the fine print? 0% is an introductory rate. That means that
you pay that rate for the first six months to a year, then the rate
bounces up to the regular rate. It also bounces up if you're late
with a payment. Don't let the introductory interest rate tempt you.
Go for the student credit card with the lowest possible regular
rate. Six months is a blink in the lifetime of your credit, and
you may have this card at the higher rate for several years.
The information sheet will list several other types of interest.
These are:
Balance Transfer APR: The interest you'll pay if you transfer
debt from another credit card. It's usually the same as the credit
card's regular APR.
Cash Advance APR: The interest you'll pay if you use your credit
card to get cash instead ofp aying directly for goods. The cash
advance APR is several points higher than the regular APR, so using
your credit card like an ATM card is always a bad idea.
Default APR: This is the second most important interest
rate. If you're late with a payment when you're paying the regular
interest rate, your interest rate will bounce up to the default
rate and stay there for a good long time. Default rates are terrifyingly
high. For student credit cards, they can be 30.99% and up. You want
to find the lowest default rate you can find—and pay your bills
on time religiously.
Overdraft Advance APR: If you exceed your credit limit,
this is the interest you'll have to pay on the overdraft. Puzzlingly,
it's often lower than the regular interest rate.
Variable Rate vs. Fixed Rate
Variable rates rise and fall because they're based on the Prime
Rate: they're the Prime Rate, plus a certain number of percentage
points. The current Prime Rate is factored into your offer, so if
you're offered a student credit card with a 16.99% variable rate
and the fine print says that the "purchase APR" (the regular
APR) is the Prime Rate plus 9.99%, the current Prime Rate is 7%.
If the Prime Rate rises, your interest rises, and you're screwed.
Fixed rates are better because they don't change. You're charged
a flat interest rate, and Prime Rate be damned. Because of this
stability, fixed-rate credit cards are going to be harder for you
to get when you're just establishing a credit record, but try to
get one if you can. The security is worth it.
Annual Fee
Most student credit cards won't have an annual fee. Check to make
certain, though, and if there's a fee, pass on the card. It's not
worthwhile to pay $50 or $100 a year for the honor of having a credit
card when there are plenty of companies that will offer you one
for free.
Other Fees
These are the one-time fees you'll pay if you're late with a payment,
if you go over your credit limit, or if you make an international
transaction. Try to get them as low as possible, but don't worry
too much about them. Just make all your payments on time and stay
under your credit limit.
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