Banks love to issue credit cards to students. Young people typically have high disposable income, generous spending habits, and very little thoughts about financial planning. By the time they mature enough to realize themselves in an adult life, filled with quickly-adding expenses and responsibilities, many of them discover that they are left with some serious credit card debt from the great "party years" at college. To avoid being a "slave" of the credit card companies for many years after college, one should take all the credit decisions seriously right from the start by carefully reviewing the credit terms and avoiding unnecessary charges.
Fees and Penalties
While annual fees for most cards today are an anachronism from the past, a lot of student cards have them. Annual fees may range from as low as $20 to as high as $300 per credit card account.
Interest charges are the most important factor when selecting a credit card. Many banks nowadays offer promotional APRs, sometimes as low as 0%, for anywhere from 3 months to a year. Credit card companies do this to better manage consumer decisions. Surprisingly a large number of people sign up for these cards without even checking what the interest rate would be after the promotional period. In a lot of cases it is wiser to get a credit card with a low fixed APR rather than the one with 0% limited time promotion and a hefty interest rate afterwards.
Penalties are set by credit card issuers for various violations of the credit agreement: late payments, dishonored checks, going over the credit limit. This is where they really get you! Sometimes credit consumers pay hundreds of dollars for one late payment in form of a late payment fee and a default APR, that may be 30%, and even higher. The bottom line is: pay your bills on time!
Limits
Credit limit is a maximum balance you may carry on your credit card that is set by a credit card issuer. All credit cards have a credit limit, even the ones that claim that they do not. Typically, student credit cards have low credit limits. This is understandable, though, since young people do not have an established history of handling credit. Once you have had a card for a year or so and have shown a record of making timely payments, the bank would raise a credit limit on your card. In many cases students get upset that they have low initial limit on one card, and try to get as many cards as possible, no matter what the terms are. This is the worst mistake you can make and is a first step in raking up credit card debt.
Grace Periods
A grace period is a period of time after a statement closing date, during which the interest charges are waived, provided that the statement balance is paid in full. If only a partial or a minimum payment is made the interest will accrue without any waivers. Paying your balance in full every month is the only way to eliminate interest charges on your credit card.
Becoming a Good Steward of Your Credit
When used wisely, they provide added convenience, security, and flexibility to the cardholders. Also, credit cards can be a great backup in turbulent financial times. Needless to say, they should not be taken lightly: having a credit card is a serious financial responsibility and it is extremely important to understand what you are getting into when selecting a credit card.