Picking a good credit card is especially important for students. With limited financial resources and virtually no credit history, you need a good card for the present and future. You need to build credit without loading up tons of debt; simplicity is key when shopping for a card.
As a college student, you will need proof of income or a parent/guardian to cosign to even get a credit card, hopefully you will have your parents with you for this important decision. But even before you are ready for a card there are some basics you must know.
- A good credit card while in college may differ from a good credit card after you graduate.
- Low limits suffice, but higher limits help for scoring purposes.
- Focus on the Standard APR and annual fee.
- Only get a card that reports to the scoring bureaus.
1. Low credit limit: It is likely this is all you can get anyway, which is a good thing. You do not want to work yourself into a big pile of debt while you are in college — you have loans and tuition for that. Get into the habit of being a good borrower and paying down your balance every month.
Airfare and textbooks are most likely the largest purchases you will make — and these usually come at opposite ends of the semester. It would be wise to start with a credit limit of $1,000, and as you become more responsible you can renegotiate for something a bit more substantial, which will also boost your credit score.
2. Note the Standard APR, not just the intro: A flashy 0% Annual Percentage Rate, will allow you to pay just the minimum balance for free. However, that will catch up to you in time, and the longer your 0% APR period is, the higher your normal APR will be. Pick a card with a reasonable APR — as a student, this is around 13-14% — but try to never carry a balance.
3. Rewards programs are great, but don’t get distracted: You can earn rewards for everyday spending like gas and groceries. However, you most likely do not spend enough to take full advantage of these cards. Cards that offer 1% cash back are benign, but do not be tempted by one offering, for example, 5x points for airfare, because you they will try and make up for the great deal by charging a high annual fee.
There are some cards that carry no annual fee — this is what you need. There are even cards that offer rewards for maintaining a high GPA. Keep in mind that your bank wants you to carry a balance so that you must pay interest on it. Rewards are never free, so for now stay focused on building credit.
4. Make sure your card reports your credit limit to the credit scoring bureaus: If not this will be counterproductive. Scoring bureaus compare the amount of debt you carry to your limit, so a card that doesn’t report your limit can make it look as if you’ve maxed your card out — which is bad for your score — when in fact you have not.
5. Low late fees: Your professors will all tell you that late papers mean a big, fat zero, but students know how to bend those policies. This is not the case for late payments — late means late and with all the due dates you have in your head as a student, a payment can slip through the cracks. Avoid late fees by setting up auto-pay, which will automatically pay at least the minimum when it’s due.
- Keep in mind that you are getting a credit card to learn how to use one.
- Credit card companies offer exciting rewards programs to entice people to sign up.
- Stay within your means.
- The fine print matters. Make sure you know what you are signing up for.