Credit Cards 101 for Students

Applying for that first credit card was surprisingly easy. You just had to complete an online application and click to submit.  In a few minutes, you became a credit card holder thanks to instant online approval.

You still had to wait for the actual credit card to be delivered by snail mail, but when it arrived you felt “official.”  As you learned in your online credit card research, the best way for students to establish credit is to get a credit card in your name, make purchases and then keep up the payments.

Sounds simple, right? You fill out an online application and then you shop. You can do that. But then the monthly statement arrives and each month it gets scarier to open it. How did it go from a proud moment to one you dread each month?

Let’s say you go out and spend $100 on new clothes for school. You don’t have that much money in cash, but you got some great deals - so you put it on your credit card. After all, you need clothes and a credit history, so why not do both at the same time?

That’s basically a good idea, but it loses something in the cost factor.  That $100 in charges is subject to a 21% interest rate. Remember the interest is applied monthly on the balance, so even after making a $10 minimum payment faithfully over 10 months, you still owe money.

How can that happen?  You paid almost $20 or two additional payments to “rent” the money to buy your clothes for nearly a year. Your new clothes may go out of style before you finish paying for them.

Imagine what a financial bind you’d be in now if you spent $1,000 on that new stereo system.  Pay close attention to the APR or Annual Percentage Rate. That’s the price you pay to charge on your credit card.

It’s applied to the outstanding balance monthly. And here’s a bit of a shocker – if you have a variable interest rate, the bank or financial institution can raise your interest rate as much as they want to - any time they want to - without warning!

“That doesn’t seem fair - no one told me!”  Yes, they did tell you. It was fully disclosed in the Terms and Conditions section that you agreed to without reading. If you have no credit history or a bad credit history, don’t expect to get as good of a deal on APR as someone who has a good credit history.

In the credit world, you’re rewarded for being financially responsible.  Try to make more than your minimum payment each month to show that you’re more than responsible with your charge card.