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Understanding Student Credit Cards
Going off too college is a big step all by itself. There are many decisions to make, and a new freedom that many young adults are not accustomed too. Money is often of concern to both students and parents, and credit card firms are well aware of this. Your child will more often than not be solicited by a credit card company before they have a chance to get into class.
Credit card companies often set up shop on college campuses during enrollment periods to solicit students. They can be found in high traffic areas, aggressively selling their product to anyone on hand. Few financial requirements are needed to receive a student credit card, as creditors assume that parents will help students should they get into too much debt. It only takes your child moments to sign up for a credit card, and it is unlikely that they understand how much damage they can cause to their credit history, and what that may mean.
Student credit cards work and are used the same way as any other card, although they tend to have higher interest rates and smaller credit limits. Even with a limited balance, the high APR can get costly, and student credit cards must be used with caution.
Watch The APR:
Student credit cards have higher than average interest rates. Almost every creditor has three offering with any card, which are Elite, Premium, and Standard. Almost every student credit card starts out as a Standard account, as the young adult has no credit history. Standard accounts have the highest APR of the three options. A student credit card with a normal APR of around 14% to 18% (as of 8/15/07) is very good, and most will be higher.
Remember that introductory rates are normal rates, and make sure your child understands this as well. Student cards can often come with intro offer as low as 5%, but this always increases after the intro period. This period is usually around 6 months.
Make the Right Choice:
Become involved in your child's finances before there is a problem. Help them sign up for a credit card, and walk them through the many pitfalls of its usage before they have the opportunity to find them on their own. This is a great opportunity to help your child learn how credit cards operate, and how to build a strong credit history early on. Having good credit early will make getting a car and eventually a house much easier for them.
Make sure they understand the monthly billing cycle, as well as how high APR payments and late fees can set them back. A student credit card in default is no different than any other card, and their credit report will suffer for it.
Let the Card Work for You
Establishing a good credit history is actually very easy using student credit cards. They are unfortunately a great way to ruin a student's credit as well. Be sure your child understands these aspects of their cards:
Default – If you don't pay your bill, you default on your credit card. Your credit history will be damaged for years to come, and creditors will be hounding you for payment. This will make it very difficult to get loans in the future for a car or home.
Late Fees – If you pay your bill late, it costs you more. This fee will be a small inconvenience compared to the damage that your credit score will incur.
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