Student Credit Card and Credit Education Blog

In my experience, a big part of the process of picking a credit card is weighing all the different programs available to choose from. There are cards that give cash back, reward points, air miles, and all sorts of other benefits. Some cards even deposit a percentage of your purchases into a savings account in your name — kind of cool, right?

In a recent CNN Money article, I read that a new trend for banks that previously had raised interest rates due to the economic crisis is enhancing their reward card programs. For instance, if you have a credit card that gives 1 reward point for each dollar spent, you’d get 1.2 points going forward. That doesn’t sound like a lot based on the number itself, but a 20% increase is actually pretty good.

So, what could a college student do with these rewards? Well, let’s take a look.

Air Miles – Think about what you want to do in college. Is travel or study abroad part of that plan? What about spring break? A student credit card that earns air or sky miles for purchases could be used to bring down the price of your airplane tickets to and from your destination.

Points – Most point cards allow you to redeem them for gift cards, or magazine subscriptions, among other things. If you can, try to get gift cards for places like Amazon, Barnes & Noble, Borders, or Visa Pre-paid gift cards — you can use them to buy or help pay for your textbooks or supplies.

Cash Back – It’s difficult not to imagine the benefit of getting money back on things you need to purchase anyway. I often have used cash back rewards to take care of a monthly payment here and there when I was a little low on money or had to buy a book for a class.

Just as a note, this post is not meant to encourage students to go out and charge a ridiculous amount of money on their credit cards to earn reward benefits. If you have read my previous blog posts, you would know I advocate strongly in favor of being in control of your credit; my point is this, if you are going to be using your cards regularly to maintain a credit history, why not get paid back for it in a way you can use?

Image Credit to Xelaeel on Flickr

Let’s face it, college life can get pricey, and I’m not even talking about tuition costs. Every day, students from coast to coast throw their money away because (a) they’re lazy,  (b) they don’t know any better, or (c) both.  What many students don’t realize  is that some of the biggest costs in college can be easily avoided if you’re willing to be a bit resourceful.

If you have a meal plan, use it. Those meals are already paid for, and can save you big over grabbing a slice of pizza and a soda every night. When I was a student at Northeastern University, the cost of my plan came out to $9 per meal. At the end of one semester, I had twelve meals left over that didn’t carry over to the following year. That’s $108 down the drain.

Pay your credit cards on time. Credit card companies are notorious about late fees or other penalties for missed payments. Not only can this adversely affect your credit score later in life, it’s extra money you have to pay out of pocket. Here’s a tip: if you credit card offers online bill pay and automatic payments (and most do), set it up.

Set up overdraft protection on your checking account. Once in college, I accidentally overdrew on my checking account, and didn’t realize until the next day. During that day, I purchased a cup of coffee, a burger and fries, and a magazine despite having less than a dollar in my account. Total cost of those items? $12. Total cost after overdraft fees? Nearly $200. The coffee wasn’t even that great.

Buy your books online. It amazes me how many people still use the school bookstore to buy their books for class. You’re throwing your money away! Worse, those book buybacks at the end of the semester will give you only about 10-15% of what you paid for the book initially. While you probably won’t find every book you need for class, always check sites such as Amazon or Half.com to see if they have a used copy you can buy for cheap. You could save hundreds of dollars.

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Here’s a common concern in this crazy online shopping world of ours – keeping your student credit card out of the wrong hands. While this paranoia shouldn’t prevent you from responsibly owning a credit card and building a solid line of credit, you should take measures to ensure that you don’t get a call from your bank one day asking about suspicious purchases in Timbuktu.

Here are some ways to stay safe:

1. Go paperless. If your credit card company offers paperless billing, do it. Not only is it safe and convenient, you avoid the threat of “dumpster divers,” people who scour through your trash looking for old statements you have thrown away.

2. Look for the seal. Always check to make sure the website from which you’re making a purchase is safe and secure. If you don’t feel comfortable buying off a certain website, you should look for the product elsewhere. If you are using a credit card to buy something from a private person, use an intermediary such as Paypal.

3. Close accounts you don’t plan to use. There is no reason to have three credit cards open if you only plan to use two. If you have an extra card that you don’t need or use, cut it up and close the account. DO NOT stash it away in your dorm room.

4. Use your credit card only for emergencies. The easiest way to avoid many of the problems associated with credit cards it to simply use it only when necessary. Keep a credit card around only for sudden major purchases (medical bills, immediate transportation costs) and you should stay safe.

If you have ever seen the movie Confessions of a Shopaholic, you know that it can be extremely easy to work up a huge amount of credit card debt that can absolutely haunt you. In the movie, Isla Fisher’s character, Rebecca Bloomwood, had 12 credit cards — all maxed out — and dealt with the constant pressure of having to worry about paying it all back, while being constantly harassed by a persistent debt collector with bad personal hygiene.

Although that is just a movie, it is a very potent reminder of why we need to stay in control of our finances and truly know what we are getting into when it comes to credit cards. A student credit card is likely the first type of card that anyone owns when growing up and becoming an adult. It has high interest, and exists to establish the very beginnings of your credit history.

Here’s a few solid tips for keeping that shiny hunk of plastic under lockdown, and making the start of your credit journey a smooth and expected one:

1. Don’t use it for shopping. That’s right – I said don’t use it for shopping. I know you’re tempted to whip it out to buy those cute shoes… but just use your debit card. “Credit shopping” is the quickest way to overwhelm yourself in debt; if you really want something and don’t have the money for it, ask for it for your birthday or a holiday… don’t charge it with money you don’t have.

2. Set a low credit limit on purpose. Step two of Operation: Debt Protect is to put a cap on how much you can actually spend with the card. I recommend, in the beginning, to set it around $400. Also, make sure to tell the bank to set your account to decline your transactions if you go over your credit card limit. Sometimes it allows you to charge things anyway, and that racks up tons of hidden fees and very high interest charges. This particular method ensures that you never rack up more debt that you can handle making monthly payments for.

3. Build your credit with small, everyday purchases. Everyday purchases (like a bottle of soda, or a sandwich) are much easier to keep track of and pay back. One strategy you can use that looks good to credit bureaus is breaking up your monthly payment into 2 or 3 spread out small payments. For starters, this lets you keep super solid control over how much you’re spending, and it makes minimum or full payments much easier to afford. Would you rather pay $30 all at once, or $10 every 8 or 9 days? Sometimes you just don’t have $30 all at once, so this strategy can be helpful depending on your situation. Personally as a former student, I found it useful because I always got low on funds between pay days… and sometimes my credit card bill was right before I got my next check.

Do yourself a favor and use these tips to smooth out credit card issues well before they happen. A student credit card is something that everyone should have because you NEED a credit history to do practically anything significant later in life (buy a house, buy a car, get a job, etc.) It’s all about being responsible.

Often times, you see words or phrases on student credit card offers that may not make a lot of sense or seem misleading. Check out the terms I’ve outlined below and discover what some of the more common snippets actually mean:

cash advance – A cash advance is when you use your credit card like checking account, and withdraw money from it. You usually have to set up a special PIN number for this, and can do it at most ATMs. I highly recommend never doing this because the money you withdraw has a much higher interest rate on it than simply charging whatever you are buying. For example, my MasterCard’s purchase APR is 13.9%, and its Cash Advance APR is 24% — pretty big difference.

charge card - A charge card is a special type of credit card, because it has to paid off at the end of the month. Think of the old style American Express cards. Many business credit accounts are charge cards, and most have a much higher line of credit (or an unlimited one) and a set annual fee for use.

credit limit – Your credit limit is the maximum amount of money you can charge on your credit card without incurring penalties or extra finance charges. If you go above this limit, it can hurt your credit score and rack up all sorts of hidden charges in the fine print of your bank statement.

credit score – Raising your credit score is pretty much the #1 reason for using a credit card. It is a number that is generated by three different credit card bureaus (Transunion, Equifax, and Experian) and is used for a ton of different things you will likely do in your life… like buying a car, buying a house, renting an apartment, and even background checking for a new job. The higher your credit score, the better equipped companies think you are to handle any type of financial debt, and as a result, they are more generous in their offerings to you, be it a lower interest rate on a loan, or an approval on that apartment you’ve been eyeing with your best friend.

default – Default is something that it is vital that you understand, from the moment you are issued a credit card. The bottom line is this: if you fail to make more than 2 or 3 monthly payments in a row (depending on the specific rules of your bank) you can go into default, and get crazy amounts of interest and a much higher APR levied on your credit account. It also pretty much ruins your credit score. Short and simple — always make your minimum payments.

fixed interest rate – A fixed interest rate means that your Annual Percentage Rate (APR) on credit card purchases does not change with the performance of the economy. If you can qualify for a low fixed rate APR, you are in really good shape and probably have a good or excellent credit score.

secured credit card – A type of credit card that requires a deposit for use; think of it like a security deposit on an apartment — you pay it at the beginning and get it back when you close the card or roll over into an unsecured type card. Banks typically offer these people with bad credit or short credit history to (re)build their status with the credit bureaus. Be on the lookout for fees, because there tend to be a lot associated with this type of card.

unsecured credit card – This is the most common type of credit card. You are given a line of credit, and you are allowed to make charges up to the ceiling of that line. You are required to make a minimum payment each month, usually derived by some formula the bank has established on your total balance. Depending on the features on your card, there may or may not be an annual fee or membership fee — check the fine print.

variable interest rate – A variable interest rate means that your annual percentage rate (APR) on credit card purchases can change depending on something called the Prime Interest Rate. This rate is officially set by the Fed and is totally dependent on economic stability. If the economy is good, the rate will be low; if the economy is bad, you’ll be paying ridiculous amounts of interest. New laws going into effect soon will regulate banks’ ability to change your interest rate and require them to notify you of these changes and the ability to opt-out and close your account.

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From personal experience, living in the dorms isn’t always the most pleasant experience, and many students choose to move out of the dorms after their freshman year. There are a lot of benefits to getting an apartment, including more privacy and your own room and kitchen, among other things. In addition, apartment living can give you more independence and freedom, since you can have friends over and do what you want without having to deal with the often overzealous campus security officers.

To that end, I’ve put together a short list of resources and tips if you are thinking about living off campus that will definitely help you save money and live more comfortably during your new adventure.

Finding an apartment. Thankfully, many schools have an office set up expressly for the purpose of linking students up to find apartments or as sort of a roommate matchmaking service. At Suffolk University, my alma mater, it was called the Off Campus Housing Office (OCHO)… your school probably has a similar name, and if you look on their website it should be relatively easy to find. In addition, there are a ton of websites online devoted to matching people together for roommate situations and apartment searching, including Rent.com and Roommates.com. Craigslist.org can be a great resource for apartment searching too, though I advise a cautious attitude when looking at apartments to make sure everything is working properly and to always bring a buddy – they often will notice things that you may not at first, and the buddy system is always smart when going somewhere you aren’t familiar with.

One point I’d like to make in favor of apartments is you often can save a lot of money by living in one. In 2009, the average cost of Room & Board at a private 4-year university came to $9,363 nationally. If you have one or two roommates and are somewhat frugal, you can save close to 30% on that cost (and potentially more) depending on where you live. Note: This is not applicable to all schools, since the city is usually more expensive, and for a suburban or rural school, a dorm may end up just being a better option and much more convenient for the average student.

Renter’s insurance. Renter’s insurance is the best friend of any student and apartment dweller, because it is inexpensive and protects all your valuables. Although the price varies from state to state, it usually costs around $200 a year to insure up to $20,000 worth of clothing, electronics etc. in case of burglary, fire, and other mishaps and/or forces of nature. One thing I recommend checking on is if your insurance package covers flood, because if the sprinklers go off in a fire suppression system, they WILL ruin your electronics and most dorms and landlords make sure they aren’t legally obligated to replace that type of stuff.

Gift cards instead of cash. This may sound kind of weird at first, but there’s a really good reason why gift cards (especially for supermarkets, etc.) are way better than cash: you can’t blow a grocery gift card on clothes or something else. During my time at school, I found that the more you have paper money, the more it burns a hole in your pocket and you’re tempted to spend it on something you don’t necessarily need. A gift card just ensures that you are using it for the intended purpose.

A backup credit card. Yes, student credit cards are very controversial. I’ve seen countless comments on these blogs that make excellent points why they can be a bad idea in the wrong hands, but here’s my argument for why you should have one: if you get into trouble, it can be a lifesaver.

My personal example for why a credit card is important comes from my sophomore year at school, when I was working part time to pay for my food costs (I was living off campus) and utilities. Basically, I had been laid off my job because of downsizing efforts, and I went through a three month period of being underemployed before I eventually found a replacement job. Without a credit card to finance basic needs like food, it would not have been a pretty situation.

This is just something to think about… because in our current economy, you always  need to have a backup plan. A student credit card can be a blessing and a curse, but in my experience, it was a valuable tool that tided me over during a hard time and I am very thankful that I had it in the first place.

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Image Credit to IFGD (Flickr)

With all of this talk about credit it is hard for high school and college students to weed out the good information and advice from the bad information and advice. Some people preach that credit cards are evil and that there is no need for a student to have one. Other people say that every person over the age of 18 needs to have a credit card. So which is correct? Do college students need a credit card to get by?

The truth is that no college student ever absolutely needs a credit card. However, if you are a student thinking about getting one there are some major pros and cons.

Pros – Reasons to Get a Credit Card

1. It is good to have in emergency (and I really mean EMERGENCY) situations. If you are on the road and your car is running low on gas and you have no cash you can use your credit card to fill up.
2. It helps build a credit history which you need to do almost anything in the adult world like buy a car or rent an apartment.
3. It teaches you responsibility. Having a credit card and making monthly payments teaches you how to budget and plan your spending accordingly.

Cons – Reasons Not to Get a Credit Card

1. The temptation to spend is greater than it is with cash. It is much easier to swipe a piece of plastic than it is to hand over a pile of bills.
2. Missing a payment or building up too much debt can seriously harm your credit score.
3. You could develop bad spending habits at a young age.

What it boils down to is that as long as you are can exercise self-control, and spend only what you can afford to spend, having a credit card is actually a good thing. If you are someone who cannot exercise spending restraint then having a credit card could be really bad. Credit cards are only evil if you let them take advantage of you.

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Let’s start at the beginning. You’re entering school, and find out that maybe financial aid doesn’t fully cover all your expenses, like books, supplies, maybe a meal or two a week that goes under the radar. You think to yourself… “well ok, maybe I’ll get a credit card — I mean I have to start building my credit history up anyway, right?”

This is an extremely common scenario among new and even existing students. According to the Washington Post, in 2010, it is estimated that students will spend anywhere between $700 to $1,110 annually on textbooks. This does not factor in living costs (room and board, or rent and utilities if in an apartment), things like your cell phone plan, and other incidentals that hindsight never sees ahead of time.

Therefore, having a plan for paying for these types of things is absolutely essential and rewarding. Today, there are a lot of different options.. and I’ll go over some of them with you to help figure out which of them, or combination of a few works best.

1. Student Credit Cards

Controversial, but very useful. In the current world and economy, a good credit history is an invaluable tool for everything from getting a great apartment to potentially a job (yes, some actually do credit checks), among other things. A favorable credit score is a very clear indicator of your ability to plan and be responsible for your finances, and that translates very clearly into the workplace and beyond.

So what’s with the stigma attached to our little plastic wallet buddies? Well, for starters… if you charge things you can’t afford to pay off in a reasonable amount of time, you’ll run up a large bill. One way of putting an artificial ceiling on your spending and preventing this is to set an intentionally low credit limit. If you don’t make a lot of money on a monthly basis… set it around $300, and that way you’ll never owe more in minimum payments than you can afford to pay.

2. Scholarships

Scholarships are definitely a favorite among students, basically because they’re free money. There are tons of opportunities on the Internet to apply and be eligible for scholarships. One such example is a service like ScholarshipPoints. They have drawings every month up to $10,000 and the only thing you need to do is register and participate in their earnings activities. Some examples of these can be anything from reading a blog post like this, to following someone on Twitter, or taking a student survey online. Very simple, pretty easy, and really rewarding.

3. Private Student Loans

Another option to finance student life is a private (or alternative) loan. Students can borrow as little as $500 up to the full cost of attendance, but are subject to interest based on the lender and prime interest rate. The benefit of this type of borrowing is that it eliminates stress in the short term so that you can concentrate on school work, etc. and have a full six months after graduation before you need to worry about paying it back. Many students (including myself) tend to choose this route just because it is easy and you don’t have to worry about putting a dime down on what is owed until after you are done with school. You can find more information about this type of lending at PrivateStudentLoans.

The perfect answer to this question would probably be to use all three methods. Each have their own unique strengths, though obviously scholarships are the preferred way to go if you can win enough of them to cover your costs. Also, federal work study and on-campus jobs can also be good ways to earn pocket money if you have time to devote to working outside of classes. The bottom line is just to make sure you have a plan, and structuring your finances will be much easier once you have an idea where your money is coming from.

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Graduating from college and getting your first job comes with a sense of financial independence. However, financial independence comes with financial responsibility. As a college graduate living on your own you will probably have  rent payments, credit card payments and student loan payments among other financial obligations. So how do you balance building your savings with paying down your debt?

Without a doubt you should be making at least your minimum loan payments every month, but if you have extra money in your budget should you use it to further eliminate your debt? That depends. It is responsible for a financially independent person to have about six months of expenses saved up. This way if you loose your job or come into extreme financial hardship you have something to fall back on until you can get on your feet. My suggestion would be to put the extra money in your budget into a savings account until you have this six month safety net. Once you have enough savings build up you can use the extra money to pay down your student loans.

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When I write about student credit I get more comments that simply say “credit cards are evil!” I can only laugh when I see this because it is so far from the truths. Today’s students have probably seen a lot of credit care misuse by their parents, family members and friends. They have seen people who have buried themselves in debt and ruined their ability to obtain a mortgate, car loan, or even a student loan.

Credit cards are not evil,  but the way some people use credit cards is evil. There is a right way and a wrong way to use a credit card. The right way can help you build a healthy credit history and credit score. The wrong way can put you in deep financial debt.

Some people use credit cards to make normal purchases every month. They put their groceries, gas and phone bill on their credit card, but always have money in the bank to back up these purchases. This is the right way.  Some people use credit cards to spend money they do not have. This is the wrong way. You can be a credit card user and never get into financial trouble. It just takes a sense of personal responsibility and self-discipline.

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