It is true the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 put some restrictions in place to help prevent credit cards issuers from marketing to students. For example, students are no longer bombarded with enticing free gifts for signing up, adults under 21 must now show sufficient income before they can be approved, and issuers can no longer send pre-approved offers to those under 21 as well. However, credit card offers are still finding their way into college students’ hands and if you are one, chances are you will find yourself in possession of a credit card offer at some point too. Like many students, you may already have college debt to face after you graduate. Even if you don’t, is it wise to take on a credit card at this stage in your life? The answer is – it depends.
Having a credit card, as long as it is used responsibly, will help you develop a good credit history in this credit-oriented society – and that is important when first starting out in the real world after college. Not having a good credit history (or even a lack of credit history) can prevent you from renting an apartment and acquiring a car loan or mortgage with a low interest rate. It can even prevent you from getting a job you want, with more and more employers commonly checking credit reports when making hiring decisions. Of course having a bad credit history can also cause these issues to arise in your life.
So how do you select your first card and use it wisely? There are several things you should take into consideration before choosing your credit card. The first thing you should do is shop around for the best possible terms. Some may offer cash back rebates, but may charge a higher interest rate than one that does not. Some may require an annual membership fee. Not all credit cards are built the same.
Look at the interest rate being offered. While the rates may not be the lowest around, there are likely to be varied rates out there available to you as a new credit card holder. If the card offer comes with a teaser rate, or a lower rate for a certain period of time, be sure to check out what the rate will be once the teaser rate expires.
Next, check to see if there is a grace period. The grace period is the amount of time you are given to pay off the balance before interest is charged. This is generally the time between the end of the billing cycle and the due date. It is best to get a card with a grace period. Also, compare the credit limits and decide which one is better for you. While higher credit limits are better for your credit score, too high of limits can be seen as a risk and prevent you from getting that car loan. Moreover, if you are concerned with overspending, it may be good to choose one with a lower limit.
Once you have selected your card from the available offers received, use the card wisely. This means carefully choosing what you pay for with your credit card. Charging a pizza and other non-necessities only adds to your debt, and if that debt is not paid off in full, you end up paying a lot more for that pizza via interest, than you would have if you had bought it with cash. Track your spending and spend your credit sensibly. Being wise with your credit also means not carrying a balance. Only charge what you know you can pay off in full before the due date. If you watch how you spend your credit carefully and make sure you pay it off in full and on time, you will reap the benefits of a good credit history.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.