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Applying for student credit cards should not be taken lightly. Avail yourself of the information provided here and make an informed decision.
Credit is a powerful tool. Its an important tool. It's convenient, it makes managing your money easier, and it can be especially useful for emergencies. But it's also a big responsibility. When credit is used improperly, it can lead to unmanageable debt and financial crisis. We want you to avoid any problems and enjoy your new credit. We believe that the more you know about credit, the more likely you are to use this powerful tool wisely. How Much Credit Can You Afford? Many experts recommend that no more than 15-20% of your monthly household take-home pay be committed to credit card minimum payments and other loan payments, excluding rent or mortgage. They also recommend that no more than 40% of your monthly take-home pay should go to paying all debts, including mortgage or rent expenses. This percentage is also known as your credit analysis ratio, a figure that represents what you owe compared to what you earn. It's a clear indicator of your financial well-being. Credit Cards Made Simple Credit cards dont give you free money. Student credit cards don't give you more money, either. They merely change the way you pay PERIOD. Terms for using credit cards include particular fees and expenses, and require responsible payment practices for continued use. The more you understand these facts, the better you control your expenses. When you apply for a student credit card, you choose whether you want: Individual credit - based on your assets, income and credit history only. Only you are responsible for making the payments. Joint credit - based on the assets, income and credit histories of both people who are appling. Primarily it's married couples who apply for joint credit. While they may obtain more credit this way, they'll both be responsible for the debt - even if they divorce. Additional persons may also be authorized to use your account. However, both primary account holders remain responsible. When you are approved for student credit cards, the credit card company or "issuer" puts a credit limit on the account. This is the maximum balance you can carry on your card. The credit limit helps keep the credit card charges at a level you can pay. Each student credit card issuer has it's own standards for the setting of credit limits. Some factors that may affect their decision are: Your monthly income Current debt (student loans, car loans, other credit card lines, etc.) Length of residence at current address Home ownership Number of times you have applied for credit You can ask that your credit card company increase your credit limit. The answer will depend on your complete financial picture. You may qualify for a higher credit limit if certain things are happening. These are: you always pay on time, your income has increased or your debts have decreased, you always pay more than the minimum due, or pay your balance in full. Annual Fee Some credit cards require an annual fee. This is the yearly cost for owning the card. The annual fee will be posted to your balance when you open the account and added each year on the anniversary of your account opening. Many annual fees can be waived later for good credit management practices or by simply asking the credit companies. Late Fees Late fees are avoidable. Good credit management insures that late fees will never have to be paid. Late payments harm your credit history and could make it harder for you to get credit in the future. Late fees are charged if your payment doesn't reach the card company by the due date. To be sure your payment arrives on time, mail it at least five days before it's due. Other fees Credit card companies may charge a fee if your balance exceeds your credit limit. You may also be charged fees for returned checks, returned cash advance checks, or stop-payment requests. Most of these fees are avoidable. Call your student credit card issuer if you have any questions about fees. Account Balance vs. Minimum Payment Your minimum payment is not the same as your account balance. If you assume that the minimum is all you need to pay, you could owe finance charges you didn't expect. Balance: Your total account debt as of the statement date. It includes any unpaid balance from last month; new purchases since the closing date of your last statement, and any cash advances you may have taken. The Card Company will also add in any other charges such as an annual fee, finance charges and other fees. Minimum payment: The smallest amount of your balance you can pay by the due date and still meet the terms of your card agreement. Some people think that the minimum payment is the only amount you owe. Not true. You actually owe the full balance. You'll owe interest on the portion of the balance that you don't pay. Annual Percentage Rate (APR) The Annual Percentage Rate (APR) is the cost of credit. If you carry an unpaid balance, the APR is your best indicator of account costs. The higher your APR, the more you will pay in finance charges. (Finance charges are the fees you pay your credit card company for using its money before paying it back). You can avoid finance charges by paying your balance in full every month. Your APR may be tied to a specific rate of interest such as the prime rate. This means your rate is "variable." It could move up or down over time. A fixed APR doesn't change in the way that a variable rate does. However, rates may change with notice from the Card Company. Finance charges can be calculated in different ways. Your account statement describes the method that applies to you. In general, finance charges are based on one of these methods: Average daily balance Most credit card companies use this method. The card company totals your balance each day during the billing period, adds these daily balances together and divides by the number of days in the billing period. Adjusted balance The Card Company subtracts payments you make during the billing period from your balance at the beginning of that period. This means your balance is kept lower and you pay less in finance charges. Previous balance This method applies the monthly finance charge to your beginning balance for the billing period. Purchases and payments during the month aren't included. Ending balance The Student Credit Card Company may use your ending balance for the billing period. If so, any purchases and payments during the billing period are included. |
