News and Knowledge

Erick Soricelli is a writer and artist living in the Washington, D.C. area.

If you have spent at least a month at a college campus, then you have seen them by now: banks with booths around your campus offering credit cards to the cash-strapped, tight-budgeted student like you.

Just because you know what a credit card is and someone has introduced the idea to you, doesn’t necessarily mean you should get one. It is very different when a credit card is in your name. It is very easy to believe you can just use a credit card for everything you do not want to spend money on right away.

Credit cards do not give you “free money.” Using and then paying off credit cards in small amounts will not make them go away. Based on data released by the Federal Reserve, the average American household averaged more than $16,000 in credit card debt in 2016, so use them wisely to improve your credit score and in case of emergencies.

Here is what you need to know before applying for a credit card. With the passing of the Credit CARD Act in 2009, if you are under 21 years old, you must show proof you can repay any debts on the account by demonstrating that you have a steady income. Otherwise, you must have someone over 21 co-sign your account. A co-signer can be a parent, spouse or a legal guardian. If you believe you can pay for it yourself on your own, check with the credit card company on what is considered “proof” that you can pay off the balance.

You are not required to own a credit card. Yes, it is helpful and yes, it can help you with emergencies. But not having a credit card is fine too. This means your purchases are made out in cash, checks, or debited from your checking or savings accounts.  Buying items in cash also means you avoid the interest that comes with borrowing money on credit cards.

That said, there are some practical reasons to have one regardless of how much you use it.  Car rental agencies and hotels may require you to have a credit card to rent a vehicle or reserve a hotel room. Some retailers allow you to split payments between cash and credit cards (this comes in handy when you are low on pocket cash). If you choose to own one, paying off balances on time and in full helps build your credit history.

Make a budget first. College is the perfect time to create a budget and figure out what you can and cannot afford. According to the U.S. Department of Education, the average student loan debt after graduation is $29,400. Loan payments await you once you graduate, but credit card balances have to be paid off immediately every month.

Respect the credit card limit. For your first credit card, the bank will set a relatively low limit, meaning you won’t be able to make purchases above a certain price such as $500 or $1,000.

Go “rate shopping.” An annual percentage rate (APR) is the amount of interest you have to pay annually based on your credit card balance. The average APR was 15.18 percent in July of 2016, so shop around for a credit card that has a reasonable lower rate.

It is very important not to sign up for the first credit card offer you receive, even if it is from your existing bank. Look at multiple credit card offers to see which one offers the best benefits for your lifestyle and needs. For example, some credit cards offer reward points for every dollar you spend; others give you travel miles and hotel deals.

Read the small print of a credit card agreement, especially when you are offered an “introductory” rate or “no interest for months.” Interest rates change over time. Banks and credit card companies do not have to have the same APR throughout the time you have an account with them. If something in the agreement is confusing to you, ask the bank representative. Many card companies also charge a fixed annual fee and finance charges to keep the account open.

Look up online credit card calculators. These will give you estimates and show you how ready, or not ready, you are for a credit card. A good Google search would be “credit card annual percentage rate calculator”.

Make sure you know what you can and cannot do with your credit card. Some banks allow you to withdraw money from your credit card at an ATM for a small fee, but others do not. Some companies allow you to transfer balances from one card to the other, which can help if you want to keep your balance on a lower APR.

Keep track of credit card payment due dates. These can be the most important and frustrating part of having an account. Due dates can be pushed backward or forward depending on when a bank is open. When you open an account, set up electronic reminders. You may even want to consider signing up for automatic payments. If you own a smartphone, download the bank’s app to help you with this, if one is available.

Pay your credit card bills on time.  Some card companies will increase your APR and charge a late fee if your payment is late by one day. That is called a delinquency and you should pay as soon as possible. Delinquencies can hurt your credit score and ability to get more credit later.

You will pay a different amount every month. All credit card bills will list a “minimum payment”. You should try to pay off the entire balance as soon as possible. For example, if your balance is $200, try to pay the entire $200 rather than the $25 minimum. Applying a minimum payment every month means interest will build and then it can go past the original amount you owe. Interest does not apply to any amount that is paid off by the original due date.

When is the best time to use a credit card? There really is no “best” time, but it can be helpful to have one in case of emergencies. (e.g. if your vehicle breaks down and you need to pay for emergency repairs). If you are trying to build your credit score, a good way to do so is to make a few small purchases each month (around $25), and then pay the entire balance in full.

Some retailers do not take credit cards. Just because you have one does not mean you can use it everywhere. Some retailers will have signs that say “CASH ONLY” or will tell you which type of credit cards they accept. If you are going on a trip, you may want to withdraw some cash from your regular checking or savings accounts.

Watch for fraud, always check your monthly statements. If you see any dates, places, or spending amounts that you do not remember, call your credit card company immediately. For example, if you live in Maine and you see a charge for a clothing store in Hawaii, then that is a sign that someone is stealing from your credit card. Sometimes, your credit card company will call you first if they see unusual activity like this on your account.

For people with autism, it can be frustrating to have a card, and see balances and rates change from month to month. It can also be annoying to have to pay a credit card bill on a different date every month instead of a fixed date.

Credit cards are great as a step toward independence from your parents. But you should not test the limits of your card once you get one.