Credit cards are incredibly enticing for college students. And while they do help you build credit, they can be awfully tempting when it comes to spending money you don't really have. That's why the government signed the Credit CARD Act into law this summer.
With research studies from organizations like SallieMae finding that undergraduates have $3173 in credit card debt on average it was clear some changes needed to be made. Read on to learn about how credit cards work now that new regulations are being put into place.
Applying for a Credit Card
Many of the CARD act regulations are focused on helping college students avoid falling into the credit card debt trap. What better place to start than the application process?
Credit Card Marketing Prohibited on Campus: The credit card hounds on campus are almost a thing of the past. Not only will they be prohibited from marketing within 1000 feet of the campus boundaries, but they also aren't allowed to set up shop at college "related events". This includes sporting events, job fairs, etc. The only way a credit card
Age Limit on Applying for a Credit Card: If you aren't old enough to purchase alcohol, you're not old enough to open up a credit card account. Anyone under the age of 21 who wants to apply for a credit card will either have to have a parent or legal guardian act as a co-signer or you have to submit proof of income.
No More Sign-Up Incentives: Credit card providers are now forbidden from offering you free gifts for applying for a card. So no more free t-shirts or koozies. While restrictions have been put on these sign-up incentives, there aren't any limits on rewards or points earned for using a credit card.
Unsolicited Offers Are Now Unacceptable: If you're under 21 credit card companies can no longer mail you unsolicited offers or issue you a credit card if you haven't applied for one.
If you are wanting to apply for a credit card, regardless of your age, be prepared to submit financial records and paperwork that proves you have a source of income. Also be aware that the credit card companies aren't handing out high credit lines like they have in the past, which is a good thing. If you're under 21 and want to increase your credit limit, you and your co-signer will have to sign a written request to do so.
If you are going to get a credit card make sure to read the fine print (get a magnifying glass if you have to) and that you fully understand all of the terms.
Student Credit Cards
Credit cards have become much more niche over time as credit card providers tailor their services to specific types of customers, and college students are no exception. Most every major provider now offers what's called student credit cards. These credit cards take into account where students spend the most money and how they use credit. Some of the benefits with student credit cards include:
- Helping you build your credit
- Information sources that teach you about credit and how to use it
- Cash back and rebates in places like book stores, grocery store etc.
- Additional rewards for making good grades
- Incentives for paying your bills on time
Credit Cards with Rewards
Even though student credit cards are made with college students in mind that doesn't mean they are automatically the best choice. There are other types of credit cards that also offer additonal benefits that might make them a better fit for you.
- Cash back credit cards. These cards allow you to earn cash rewards for making purchases. The more the card is used, the more cash rewards you receive. Since cash back programs are costly to credit card companies, some of these cards have an annual fee that can vary from $50 to $100. This type of card is best for people who are faithful about paying off their balances each month.
- General reward points credit cards. Reward credit cards are similar to cash back cards in that cardholders can accumulate points toward a reward structure, which is based on how much the card is used over time. General reward cards offer cardholders a variety of items to cash points in for: gift cards, electronics, hotel stays, plane tickets, jewelry, pet supplies and more. There is usually a large annual fee for these cards as well.
- Hotel points credit cards. These credit cards allow you to earn points for all purchases, in addition to bonus points for dollars spent on stays at the respective hotel chain. You can redeem your points for free nights and upgrades at the hotel chain your card is co-branded with. There are annual fees for these cards.
- Retail reward credit cards. Points are accumulated by making everyday purchases, though cardholders are awarded with double or triple points for making purchases from the co-branded retailer. There are typically no fees to get these cards, but the interest rates tend to be high, making these cards easy to obtain for college kids.
- Gasoline points / rebates credit cards. With these cards, it pays off to use your credit card at specific gas stations. Much like retail credit cards, there are typically no fees for these and the interest rates tend to be fairly high.
Making Credit Card Payments
Making your credit card payments on time, every time is extrememly important if you don't want your credit and wallet to take a hit. But before you just pay the minimum balance find out about how interest charges factor into credit card payments, prepaid credit cards and more.
Interest Charges
There are three basic ways in which credit card interest charges are determined.
- Adjusted Balance Method
- Average Daily Balance: the most commonly used method
- Previous Balance Method
Your credit card company should state in its terms and conditions which method they use to calculate interest charged on your balance. To ensure you make the most informed decision possible we cover credit cards and interest rates in detail in another article.
Using Credit Wisely
While having a credit card builds credit while you're in college, there are some things to keep in mind if you have one.
- Try to use it only for emergencies. You will be far less tempted to use the card if it's specifically for when you have no other options.
- Try to pay off your bill every month. This may be unrealistic sometimes, but this is your best bet for staying debt-free. If you cannot pay off the entirety of your bill each month, pay more than the monthly minimum.
- NEVER pay your bill late. This is a sure-fire way to bump up your minimum monthly credit card payments and reduce your credit score, which makes it harder to apply for loans down the line.
Prepaid Credit Cards
If making credit card payments isn't something you want to keep track of or might forget to do, you can always opt for a prepaid credit card. A prepaid credit card account is opened by depositing money into an account much in the same way you would make a deposit to open a savings account. Once you have money in your account, you're issued a prepaid credit card that can be used anywhere one would use a regular credit card.
You can charge anything to it and you won't be in debt. The money is yours. There are no bills and no interest charges. It's the same principle as using a debit card linked to a savings or checking account, but it actually helps you build credit.