If you're heading off to college, you're probably looking at credit cards for college students. Despite popular belief, credit cards are not evil incarnate. In fact, building up a credit history while you're still in college can serve you well when you fill out a rental application, take out an auto loan, or get car insurance. But issuers know that you're probably inexperienced in choosing a credit card, so be on the lookout for gimmicks, tricks and slick marketing.
1. No co-signer required
Many college student credit cards advertise that they don't require a co-signer. Actually, they're just like every other credit card. If you have an income of your own (usually, you don't earn enough as a full-time student to qualify), you don't need a co-signer on any credit card. On the other hand, if you don't have an income, you'll need a co-signer no matter what. Per the Credit CARD Act of 2009, your credit card application will be considered based on the income of the people liable for the debt. If you don't have any cash, sorry, you'll need a parent on the card with you, no matter what.
2. Good GPA discounts
Some rewards cards will give extra points if you have good grades. Mind you, extra rewards are extra rewards, but the marketing is still a bit misleading. For example, one credit card promises up to 2,000 points twice a year for getting good grades. However, you get the full 2,000 points only if you have a 4.0. If you're mortal, like the rest of us, the most you can get is 750 points with a GPA between 3.5 and 3.99. The card advertises $20 in rewards, but if you've got a 3.9, you'll only get $7.50.
3. Shiny rewards programs
Credit card companies want you to get rewards credit cards. Really. Even though it looks like they're giving away money, they'd actually much prefer that you go with a rewards card over one with a low APR. That's because they know that even though you know you shouldn't carry a balance on a rewards card, you probably will. Don't be taken in. If you figure that you'll have credit card debt, go with a low interest credit card. Although they're not as enticing as pretty rewards programs, you'll save more in the long run.
4. Prepaid debit cards
Many credit card issuers also offer prepaid debit cards as an alternative to lines of credit. They'll bill these as a great way for college students to learn financial responsibility and money management, since you can't spend more than what's on the card. What they don't tell you, however, is that prepaid debit cards often come laden with hidden fees and charges. These can range from monthly maintenance fees to a charge every time you make a transaction, make an ATM withdrawal or check your balance. If you're going prepaid, read the fee schedule carefully. Generally, though, you're better off with a regular old checking account with no fees.
If you're considering a credit card...
Be very careful. Read the terms and conditions, especially the information on the rewards programs. You may see limits on the number of rewards you can earn a year, or high rewards rates that only kick in after you've spent a certain amount. Know your spending habits. Will you carry a balance? Then choose a low APR card. Can you handle credit at all? Be honest with yourself: if your parent is co-signing the card, any missed payments on your part will drag your parent's credit score down as well. Like most parts of college, credit cards represent newfound freedom but also significant responsibility.
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