Student Credit Cards
As a student, you’re going to be flooded with opportunities to apply for credit cards. You’ll get letters from the big names in the credit card industry and some that you’ve probably never heard of. Before you start sending in those applications, there are some things you should know about credit, credit card companies and how this will affect the rest of your life.
One of the first things to note about those credit card applications is related to a common misconception about credit cards – It won’t hurt to apply. Lots of people have that attitude but it simply isn’t true for several reasons. One of the most important is that your attempts to get credit play a role in your credit history and your ability to get credit in the future. To fully understand how this works, let’s start by looking at credit reports.
Your Credit Report
Your credit report is compiled and maintained by three major credit reporting companies. These are not (as some people think) government agencies. They’re just companies that are in the business of providing credit reports for lenders. Here’s how files are compiled and maintained.
Each person who does anything related to credit – loans, credit cards, car payments – probably has a file with the credit reporting companies. The file contains vital statistics (social security number, address, etc.) and information that will help lenders decide if you are a good credit risk.
Information about credit applications you’ve filled out – including whether you were approved or rejected for that credit – is also typically included on your credit report. That means that those 25 credit card applications you applied for will likely be noted on your credit report. What does that mean? Consider it from a creditor’s point of view.
Excessive applications for credit could mean that you’re “credit hungry.” If you were approved for a number of those credit cards, you probably have a pretty high credit limit. If you haven’t got a good history of paying off credit debt, a lender may look at you as a bad risk. After all, if you have all those credit cards, you may very well be planning to run up a ton of debt. Who knows if you’ll be able to pay that back? A lender may simply not be willing to find out.
Denied? What to do?
If you were denied those credit cards, you still may be considered a poor risk for another reason. A lender will look at your repeated attempts to gain credit as a sign that you’re anxious for the opportunity to charge things. Again, being a young person you’ve likely had little positive points on your credit report and the potential risk is sometimes more than a lender is willing to take.
So what’s the answer? There are actually some important things to keep in mind as you get bombarded with credit card offers.
Choose carefully. You may very well be able to pay off a dozen credit cards that are maxed out, but you have to prove your worthiness to potential lenders. Choose only one or two credit cards and use them wisely. Be sure you can make regular payments on time, every time.
Take time to read. Even if you see an offer that looks like a great deal, read the fine print. It may seem like Greek at first, but you’ll soon understand the terminology. When there’s an introductory offer that sounds like a terrific offer, be sure that you can stand the interest rates that will be applied after that time.
You should also pay attention to hidden fees. You may find that a credit card has incredible interest rates only to find that you’ll pay an annual fee whether you use the card or not. These are seldom good deals unless you’re using the card a lot.
Use credit wisely. While you may have taken out the credit card with the best intentions – emergencies only! – you may find that impulse buying is really easy with that little piece of plastic. Before you make an impulse buy, know for sure how you’ll pay for the purchase. Remember that your decisions now will impact your ability to buy a car, house and other major purchases for many years.
Are credit cards to be avoided?
So are credit cards an evil to be avoided? Absolutely not. They are incredibly convenient and can be a good safety precaution. There’s no need to carry large amounts of cash if you have a credit card. Most companies protect your purchases so you have an intermediary if your card is used fraudulently, even if you lost it.
Having a credit card gives you an excellent opportunity to begin establishing positive credit. If you use your card wisely, make payments on time, you’ll have a great credit rating by the time you finish school.
Applying for a credit card is a very adult decision, and it takes adult dedication to keep your payments up to date. Take time to consider all the ramifications before you fill out that credit card application. And don’t think that one credit card offer is all you’re going to get – the opportunities are available, but it’s up to you to choose wisely.
Belinda Mills is a financial blogger at irs-easy.com. Please check out her other articles there.