For students trying to build credit, credit cards can be a great option, but some risks come along with them that you need to be aware of.
The Credit Card Act of 2009 requires those under 21 to either have proof of income, or an adult cosigner in order to have a credit card. For many college students who have very little income or are under 21, this can leave you with few credit card options.
If you have enough income or can get a cosigner, which could be a parent or family member, a student credit card could be a good option for you. Many student credit cards have no annuals fees, have reasonable interest rates, and offer rewards, such as cashback. Some credit card companies will even provide you with your credit score, which can be a great perk if you are trying to build credit. Many credit card companies also have apps for your phone that can help you track your spending and pay your bills. Most student credit cards have interest rates between 11.15% and 21.99%. Another option could be a credit card offered by your bank or credit union. Be aware of the interest rate, late fees, and any other fees for any credit card that you apply for. Always research any credit card that you are thinking about before you apply.
If you are not approved for a credit card, or have bad credit, there is another option: you can apply for a secured credit card. A secured credit card is for those who want to build or rebuild their credit. For a secured card, you are required to deposit money into a savings account to be used as collateral if you are late with your payments, and that deposit will then become your credit limit. A secured card works just like a credit card, and you will have monthly payments and be charged interest if you do not pay off your balance. Secured cards usually have an annual fee, and usually do not have the same benefits as many other credit cards. However, secured cards may be the only option to build credit for some.
Just remember that if you are not paying your balance in full every month for any credit card, you will be accruing interest, which will add up over time.
Tips:
- If possible, pay your balance in full every month to avoid the costs of interest.
- At least make the minimum monthly payment.
- Always pay on time. Late payments stay on your credit report and score for 7 years.
- Never exceed your credit limit and try to stay between 1-30% of your limit.
- Use credit sparingly.
- Explore your options before applying for a credit card on a website such as http://www.nerdwallet.com/ or http://www.bankrate.com/
- Always read all terms and conditions before you apply for a credit card.
Sources:
https://www.creditcardinsider.com/credit-cards/student/
https://www.creditcardinsider.com/credit-cards/secured/
http://campusgrotto.com/credit-card-act-new-rules-for-student-credit-cards.html
Heidi Hilton
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc
