For many people, college is a practical time to sign up for a first credit card. It's often a time when students become financially independent from their parents or when they face expenses that are too large to pay immediately, out-of-pocket. According to the student loan agency Nellie Mae, 84 percent of undergraduate students in 2008 had at least one credit card, and graduating seniors had an average credit card debt of more than $4,100.
Though a credit card may seem like a license for a spending spree, owning one and using it wisely can actually help you build credit history and learn how to budget. So how do you know which one is right for you? Read on to learn more about the power behind that little piece of plastic.
The credit card as we know it today emerged in the United States around the 1950s with The Diners Club card, and today, a seemingly countless number of options exist. A credit card is issued by a bank, retailer or store, and it allows people to purchase goods and services on credit. One important aspect of credit cards is the credit limit, which sets a specific amount of monthly spending credit that the holder is not supposed to go over. Lower limits are typically set for people with less credit history or a poor credit report. Another important aspect of credit cards is the interest rate. Before setting an interest rate, a bank will determine the applicant's credit risk, checking national credit bureau reports that identify the borrowing history of the card holder applicant with other banks, or take detailed interviews and documentation of the applicant's finances. Rates vary widely, but typical credit cards have interest rates between 7 percent and 36 percent in the U.S. If you do not pay your credit card bill on time, you will start accruing interest on the unpaid amount. Check out this article for more details.
You can apply for a credit card online, through paper application or by phone. Most banks offer credit cards tailored to students, so a good starting point in deciding which bank and credit card to go with is the comparison sites below, which offer detailed information on many credit cards and their terms, bonuses, rewards and other incentives.
These articles offer some tips to first-time credit card applicants:
Safety and Scams
Though it may seem obvious, a surefire way to keep your credit card information protected is to keep your credit card in a safe place and routinely check to make sure you have it with you. Credit cards are small, and can be easily left in pocket or dropped, and they are most often used in busy and distracting environments, making it more difficult to keep track of. If your credit is ever lost or stolen, the first thing you should do is report the loss immediately. Call your card issuer as soon as possible. The phone number to report such a loss should be on your billing statements or on the issuer's Web site. Reporting a lost or stolen card right away helps protect you in the event that fraudulent charges are made with your lost or stolen credit card, as mandated by The Fair Credit Billing Act (FCBA). Check out these 21 tips to protect yourself from being a victim of credit card fraud, and this information from the Federal Trade Commission on avoiding credit and charge fraud.
One of the most important ways to keep your data safe is to be extremely aware of all related Internet activity. From account updates to paying your bills, almost everything related to your credit card can be completed online. However, online scams and insecure connections can leave you and your information vulnerable to theft and fraud. Though many college campuses offer public computing sites, it is highly recommended that you log into your account using a personal computer, and at the very least, always check to make sure you have a secure Internet connection. Be skeptical of any e-mails that you receive regarding your account, even if they look legitimate, and especially if they provide a link to your purported account and ask you to log in to verify information. Your credit card issuer will rarely e-mail you asking for updates, and if they do, they will definitely require you to answer the security questions you set up when creating your account. This same approach applies to any phone calls you may receive asking you to verify your account number or any other private information. Being skeptical of all outside contact regarding your credit card is the best tactic for keeping your information safe.
Finally, be sure to check your statement every month to ensure that all charges are correct, and promptly deal with any suspicious activity or errors.
Budgeting and Other Tips
From text books to late-night pizza, credit card charges can add up fast. Find a scheme that works for you, whether monitoring your account online or saving receipts and tallying the charges.
This student budget calculator calculates the difference between your expenses and income, identifying when you are spending beyond your means, and more sophisticated sites such as BudgetTracker offer free personal finance software to track your bills, budget, calendar and transactions.
The Federal Reserve offers these five tips on getting the most from your credit card, which include paying your credit card account on time, staying below your credit limit, avoiding unnecessary fees, paying more than the minimum payment and watching for changes in the terms of your account.
In closing, if you need to close a credit card, browse this article from About.com for a few quick tips.
Happy (and safe) spending!