The 411 on Credit Card Offers

Credit card companies always target students. But before you get in shopping mode, here’s everything you need to know so you don’t wind up piling debt on top of hefty student loans.

A good way to build credit, you argue? Well ... if you don’t know what you’re doing, it could have quite the opposite effect. Take notes:

According to a 2009 Sallie Mae study, the average college student has 4.6 credit cards and the average senior graduates with $4,100 in credit card debt -- not including additional loans from tuition or car payments. In today’s environment, in which landing a dream job is not so easy, students need to be cautious and smart when it comes to their finances, says Gail Cunningham, vice president of public relations and spokeswoman for the National Foundation for Credit Counseling.

Doing your homework when it comes to choosing a credit card will prevent you from starting your professional life in the negative.

Choose a Card

Because of the Credit CARD Act of 2009, anyone under 21 applying for a card either has to demonstrate an ability to pay the bills (read: show that you have an income) or have a cosigner. If you’re under 21 and don’t have a job, ask a parent to sign off for you to start building credit.

Credit card companies like Capital One and Discover have cards specifically for students, so look at all your options before signing up for one. Always remember to read the fine print to get the best fees and rates for you. Keep reading. …

Know About the Fees

The annual percentage rate (APR) is the amount of interest you’re charged on purchases when you don’t pay your bill in full each month. The lower the APR, the better, says Cunningham -- anything that is in single digits is ideal. For a college student who doesn’t have any credit history, however, an interest rate of about 15 percent is more realistic, according to Anita Eisthen, a JustAnswer.com finance expert.

When you don’t pay your bill on time, credit card companies can charge a penalty rate of up to 30 percent on all your outstanding balances, says Eisthen, so avoid late payments at all costs. Credit card companies offer a grace period of at least 21 days from when the statement is sent before a late fee is applied, but Cunningham recommends paying the bill the day you get it. “You can also pay your credit card online to save yourself from interest charges and late fees that can be assessed if you send your payment through the U.S. Postal Service and it is delayed or lost in the mail,” says Eisthen.

Another important fee to be aware of is the annual fee, which is a charge just for having a credit card. There are plenty of great credit cards that don’t require this, so try to choose one that doesn’t.

Build Your Credit

While many students can pay for small items with cash, you’ll likely need to build a good credit rating to qualify for a loan when it comes to making larger purchases, like buying a car or a house. Proving that you have a good credit history and can pay your bills in a timely manner will earn you a good credit score and make you more worthy of loans and lower interest rates.

“It’s going to take at least three open lines of credit to have good credit for a credit score,” says Cunningham. “Start with a general-purpose credit card, and get a gas-station credit card and store credit card to help build credit.” Make sure you keep track of all purchases and pay your bills on time to avoid a bad credit score. Cunningham says it takes about six months of activity to start building credit, and you can check your credit report for free once a year at AnnualCreditReport.com.

Know Your Limit

Because student credit cards usually start with a low credit limit of about $500, make sure you don’t go overboard. There shouldn’t be a need to charge your full credit limit each month, so only use the credit card as a convenience when you don’t want to carry cash. Be sure you only charge what you have in your bank account. “The more you handle your credit responsibly, it’s likely that your credit limit will be increased,” says Cunningham.

Pay More Than the Minimum

“It’s best to pay off the credit card each month rather than carrying a balance and paying interest,” Eisthen says. “It’s very easy to get yourself into a hole that is hard to get out of.” To ensure that you don’t go crazy with the plastic, Cunningham recommends writing down each credit card purchase in a checkbook and subtracting it from your total balance. “At the end of the month, you’ll have that money waiting to pay your bill and you’ll never have interest added on,” she says.

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