As a student, a decision to get a credit card may arise from a combination of factors. It may be for the convenience of paying school fees and purchasing books on-line. Another reason may be to budget for expenses and better manage your finances. Low-fee or reward based cards specially targeted for students that are offered by companies and banks may also be a factor. Whatever the reason, it is a decision that needs to be made with care.
The following are some factors to keep in mind when applying for that first credit card.
Interest rate and fees: While the low rate or no fee cards that are offered are no doubt irresistible, please note that these usually apply for an introductory period of three to six months. Check on how rates will change after this first phase. Inquire whether your interest is fixed or variable and how it is computed. Some companies charge interest daily based on your outstanding balance while others use an average based on your billing cycles. While some cards charge an annual fee, others are “no fee” but charge a higher interest rate to compensate for this. Understand the terms in your contract and conditions you have to comply with..
Other charges: In addition to the above fees, other charges can easily add on if you use your card unwisely. Making late payments, spending over the limit and using your card to make cash advances are examples of such situations. The best way to avoid these is to use your card prudently. If not, accumulated charges can wipe out any rewards you hope to get from your card.
Spending habits: A credit card offers the temptation of splurging on items you can ill afford. Remember that whatever you charge to your card eventually turns up for payment at the end of your billing cycle. Keep a strict rein on your spending, by always remembering your spending limit and other commitments. Think of your credit card as an opportunity to better manage your spending. Being disciplined from the outset can lead to many benefits along the way.
Build your credit rating: A credit card provides an opportunity to establish a good credit record. Make sure that the balance outstanding is not high when compared with your approved credit limit. Minimize the risk of default by arranging with your credit card issuer or bank to automatically debit your payment by the due date. Make a habit of settling the full balance at the end of each billing cycle. That way you pay no interest and enjoy the full benefit of having a credit card. Paying only the minimum balance increases interest charges. If it is not possible to pay the full balance, pay what you can on the due date and the rest later. Do not carry over balances to the next billing cycle.
A credit card offers an opportunity to establish good spending and payment habits. Use it wisely to earn financial security and redeem rewards.