Graduating college is an exciting time in one’s life. However, going into the world with a degree in hand and no credit can present its challenges. Moving into your own place for example could be costly with high deposits, or you could be denied all together without a credit history. Even starting up utilities or Internet, TV, and phone service could cost you a hefty deposit. Without a credit history, companies cannot assess how credit-worthy you will be going forward and must assume you may be a high risk. As a result, many of them will require a deposit to protect their interests. In fact, even getting a job can prove to be challenging, as many companies require a credit check, and you could lose out on a great opportunity if your credit history comes up empty. So, while there are always risks to starting a credit line while in school, the risks of not starting one may be higher. Students typically find themselves inundated with credit card offers. So, while in school, it would be wise to review the credit card offers you receive. So how do you choose which one is right for you?
- image source, flickr
The first thing to look for is the interest rate. Make sure you select one with the lowest rate, especially after the introductory period. While it is nice to obtain an introductory interest rate, do not be lured in by zero percent interest for the first six months, only to find you are hit with a staggering APR rate after the promotional period expires. Instead, focus on the normal interest rate when comparing offers. Students should typically find a rate somewhere in the mid-teens, (e.g., 15%) and should avoid anything that is above 20 percent. The reason for focusing on the APR is because most students tend to carry a balance and the interest on that balance will obviously be lower if you select a credit card with a favorable interest rate.
Aside from the interest rate, you should also review all fees associated with the credit card. It is possible to avoid those with annual fees; and this is another important consideration when selecting a credit card. Also, watch out for any hidden fees in the fine print. In fact, it is wise for students to always read the fine print before signing up for any credit card. Additionally, credit cards that offer a free gift are probably not the best ones to choose. Many of these offers typically require you to carry a balance and the APR rate on that balance is likely to be higher than what you can find with other offers.
Another feature you may wish to consider if you have good grades is a cash-back option with the credit card you select. Some companies will offer an incentive to students with good grades (who also pay their credit card bill on time) with a 1%-5% cash-back reward. Again, just remember to read the terms and conditions of the cards to make sure you are receiving the most “bang for your buck”.
Finally, the most important thing a student should remember when selecting a credit card is to not open up too many accounts. Rewards, gifts, and credit lines can be very tempting. However, getting into a large debt with credit cards that snowballs into late and missing payments will not help you after you graduate. If you are not disciplined enough to manage the credit (and making the required payments), it may be best to not get one at all. The bottom line is look for the best interest rate on one card and pay that on time, every time and you will be ready to transition into life after college.