Financial independence is something that often comes along with moving to college, and applying for a credit card is something that should be considered. Credit cards are useful tools that make borrowing money convenient and easy. They allow you to establish good credit and can be a life-saver in emergency situations. However, they must be used responsibly so that you don’t dig yourself into a hole. Going deep into debt and acquiring bad credit can affect your everyday life after college. There are both pros and cons to getting a credit card, but the biggest con is rushing to get one before you are ready.
What is a credit card?: Credit cards are essentially an unsecured short-term loan from the bank, which are used to buy consumer goods or services. These loans can range from any amount up to a certain limit. If you don’t promptly pay off the amount you borrowed, you will be charged a certain amount of interest. Most commonly, interest rates are variable and charges are applied each month depending on the interest. If you decide to only pay the minimum amount required and carry a balance, your cumulative debt can balloon.
How to use your credit card responsibly: Before you buy something, ask yourself if what you are about to buy is something that you need or just something that you want. Make sure to avoid impulse purchasing. These small tips will allow you to pay off your loan in its entirety at the end of the month, allowing you to build good credit. Establishing good credit makes it easier to access credit after graduation for major expenditures including renting an apartment, buying a car, or taking out a mortgage.
What is the CARD act?: College students are an ideal target for many credit card companies. As a result of this, credit card companies began excessive marketing campaigns on college campuses and students signed up for credit cards when they were not ready. The CARD act was implemented in 2009 to fix this problem. This act eliminates companies from marketing their products excessively to students who may be naive and lack the knowledge of handling a credit card. It also requires all first-time credit card users to prove that they have an independent means of income. This means getting a credit card is now a lot tougher.
How do students acquire credit today?If you believe you are ready to take on the responsibilities of managing a credit card there are two simple ways you can do it. If you can’t prove you have your own means of income the first thing you can do is get someone to cosign for you, such as your parent. Before having your parent co-sign make sure you set clear boundaries regarding your card use. The second way you can get a credit card is becoming a user on your parents account. This allows them to have more control over your card than if they co-signed for you. They can monitor your spending and help you balance your budget and credit.
If used properly, credit cards can provide you with many useful benefits, but this doesn’t mean they are for everyone. There are many alternatives to credit cards. The easiest solution is to just use cash. Another option is to use a prepaid card. Prepaid cards have a certain amount of money on them which has already been paid for. They can be used at any time until the pre-paid money essentially runs out. Similar to a pre-paid card is a debit card. The difference is that the money on a debit card comes straight from your savings account. All of these different options can help a student who is financially independent for the first time, but it is important to make the right decision for you.