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.
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