Credit Cards 101 for Students

by : Nick Makaryk

Getting that first credit card was so easy. All you had to do was fill out a simple application online and click a button to submit it. Just like that, you were a credit card holder, all thanks to online approval systems.

Of course, you still had to wait for the card itself to come in the mail, but didn't feel official when it finally arrived? When looking into credit cards online, you read that the best way for you as a student to establish credit was to get a credit card, make small purchases and make your payments on time.

Sounds easy, doesn't it? You complete an application and then not much later, you shop. Of course, the statement arrives monthly and every month, you dread opening this envelope more and more. How did this happen?

Suppose that each month you spend $100 on new clothes. You may not have a lot of cash on hand, but there were some really good deals, so you charged it. You need clothes, you need a credit history; so why not kill two birds with one stone?

Now this is inherently a good idea, however it loses something when you analyze the costs involved. That $100 you charged for clothes comes with a 21% interest rate! This interest is applied monthly on your balance so that even after 10 months of making the $10 minimum payment, you will still be paying for those clothes.

So how did this happen? Essentially you have been paying rent on the money you used to buy those clothes for almost a year. Those clothes may well be out of date by the time you finish paying form them!

No just imagine how much of a jam you'd be in if instead you would have spent $1,000 on a stereo system for your dorm. You need to be well aware of the APR (or Annual Percentage Rate) associated with your credit card this is how much you will be paying to use your card.

Each month, this interest rate is applied to any outstanding balance you may have. Here's some shocking news if you have a variable rate if interest, this means that the issuer of your card can raise the APR of your card anytime, as much as they want, with no warning!

That's just not fair! Nobody warned me about this! The truth is yes, you were warned about this. In your Terms and Conditions agreement, which you signed without so much as a glance it was all spelled out for you. If you have no credit history, or bad credit, you cannot necessarily expect to get such a good deal on your APR as a person with a good credit rating.

In the arena of credit, you stand to gain by being financially responsible. Make more than your minimum monthly payment, if possible to display your responsibility with your credit card.