Related articles
Student Credit Cards: What Is the Real Interest Rate?
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. To a credit card company, you are their dream date: young, with a clean credit report and (they hope) no understanding at all of how credit cards work. 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 disappoint them.
The first tip is to not be suckered by that bright, shiny "0 percent interest rate" printed on the front of the brochure. That is the introductory rate. After as little as six months, it goes poof, and suddenly everything you charged to the card is accruing interest at the card's 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. If you let your interest compound, you can wind up paying two or three times as much as the original sticker price.
The key to using a credit card well is to pick the card with the lowest regular interest rate you can find, then charge as though the zero percent introductory rate didn't exist and you were paying the regular interest rate. 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 really pay. 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. Have fun with your new credit card and start laying the groundwork for your future credit... on your terms.
