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A Guide to Picking the Right Student Credit Card

Student credit cards

Now that you are a college student, credit card companies are going to court you with a passion you only wish you could see from prospective boyfriends or girlfriends. As far as the credit card companies are concerned, you are a dream date: young, with an unmarked credit report and (they hope) bound less naivete about credit cards. They want you to take a credit card with an irresistibly low introductory rate, spend madly, and owe them thousands upon thousands of dollars when your interest rate shoots up at the end of the introductory period. Let's make sure that doesn't happen.

The first tip is to ignore the huge, sparkly "0 percent interest" printed in bright red and gold letters on the front of the brochure. That's nothing but an introductory rate. After a set period, probably six months, it vanishes, and suddenly you owe the real interest rate. The interest rate on credit cards pitched to students are generally higher than standard cards, and currently are about 13 to 21 percent. Student credit cards also come with high default rates that rocket up to 25 to 31 percent if you break any of the terms of your credit card, including something as slight as paying your bill a day late. The higher rate is retroactive, so regardless of what the rate was when you bought something, you will be billed at the higher interest rate until you pay your entire balance off. Once the interest starts compounding, you could pay two or three times as much as the item is worth.

The key is to choose a card with the lowest possible regular interest rate, then spend as though you were already paying that rate on your purchases. To puzzle out which interest rate is a credit card's real rate, look for the fine print or find the chart that lays out the rates. Find the standard purchase annual percentage rate (APR) and the standard cash advance APR. These are the rates you will pay after the introductory period ends. Compare all of your student credit card offers, ignoring the introductory rates and all the frills and cash back offers; the only important considerations are the standard purchase APR and the standard cash advance APR.

Once you have narrowed the selection down to a few cards with the lowest regular interest rates, search the fine print for gotchas like high default interest rates and annual fees, and eliminate any cards that have them. Now that you have a few likely offers with low interest rates and no nasty surprises, you are free to consider rewards packages and pick the student credit card you like best. Enjoy your new credit card and set the foundation for your future credit... on your terms.