Student Credit Cards

I’m a Senior in high school and I’m taking a senior seminar called “Life After High School”. A speaker visits the class once a week discuss topics we’ll encounter when we graduate high school. This week, the speaker was a woman who owns a real estate investment company. She buys homes, fixes them up and sells them for a profit. She also helps people who are unable to get loans from a bank by creating plans to buy houses they may not have been able to afford otherwise.

So why is this so cool? I, along with the 20 seniors in my class were really interested in her discussion about credit cards. If you are getting ready to go to college like me, establishing healthy financial habits is a vital part of being successful and making your dreams come true.

As you know, you can legally sign for a credit card the day you turn 18. You’ll start seeing applications in the mail on a regular basis unless your parents have been throwing them away for you. Responding to these applications can set you on a path toward serious financial trouble.

Here’s what happens: a student receives an envelope in the mail that asks them to sign up for a credit card. Perhaps there is a perk such as a free t-shirt when you sign up or being able to decide what your credit card will look like. Students might sign up without looking at the fine print and charge purchases to the credit card without thinking about the actual expense. The student is then unable to pay the bill when the statement arrives in the mail. Pretty soon, the student has a mountain of debt because the interest rates for students are sky high.

What else is wrong with this picture? At some point, you will eventually have to get a credit card. Why? Because in order to buy a car or rent an apartment, you will have to have a good credit history. In order to obtain that, you have to have a good credit score to prove you are responsible and can pay your bills on time. In order to have a good credit score, you have to have a credit card.
So savvy dreamers, here is how you can do all of that without getting into trouble. When credit card applications arrive in your mailbox, look at the interest rates. Most of them will probably be 0%, but the terms probably state “0% interest until 2009” or “no interest for 12 months” that is a pretty good deal huh? Unfortunately most of us fail to read what happens when we miss our first payment or what the interest rate is if we have a statement over a certain dollar amount. Generally, the interest rate soars through the roof if you miss a payment, (30% or higher in some cases) and the same thing happens if you have a statement over your maximum amount.

Well, our speaker told us that the key to credit cards is simple: DON’T USE A CREDIT CARD UNLESS YOU’LL HAVE THE MONEY TO PAY THE BILL BY THE TIME THE STATEMENT ARRIVES IN THE MAIL.

For now, a credit card can be useful if it’s used for EMERGENCIES ONLY. Expenses will probably come up in our lives when we won’t have enough cash on hand to handle them. So, credit cards are great, for emergencies only.

You might ask, “If I don’t use my card, how will I establish credit history?” Here’s how: buy a tank of gas every other month or so with the credit card you have for emergencies. Why? You’ll receive a statement that you can afford. So, you can pay it on time and prove that you can pay bills on time.

Got all that? Here’s a quick summary:

• Talk to your parents about starting a safe student credit card.

• DO NOT use the credit card if you do not have the money to pay the bill when it arrives in the mail.

• Build credit history by charging a tank of gas or another expense you can afford every couple of months.