I'm going to be 18 soon and I would like to apply for a credit card or two in order to begin building a (good) credit record early. I've seen offers for student credit cards, which naturally seem like the right thing for me. However, I was wondering if these are really a good deal, or are [they] underhanded schemes to lure gullible teens into a costly credit situation? Would I be better off trying to apply for normal cards? Thanks for your great advice in advance. -- Matt, via email
You are making your mother so very proud right now. We're both glad that you're thinking about credit in a reasonable way and that you recognize that the lending industry will do just about anything to snare a new customer. You, my friend, are wise beyond your years.
But let's back up. I take it you are currently a student and are getting credit card offers geared toward young, unemployed borrowers with parents just a phone call away to bail you out should things get out of control. Just because your campus allows certain credit card vendors to peddle their wares while you saunter to class doesn't mean that they carry any seal of approval. There are plenty of awful offers out there (here are a few that readers have encountered), and unfortunately, some real stinkers get by campus brass.
While many would advise you to simply avoid getting a credit card until after college, it sounds to me like you're approaching this with a clear head and some Foolish (in that good Motley Fool way) research. Frankly, I don't see you falling for the free T-shirt come-on. So grab the pamphlets and walk away from the credit card sign-up table, get a cup of coffee and a comfy seat in the student union, and see what lenders are using for lures these days. My advice is to scrutinize those student card offers the same way you would any credit card solicitation by starting with a few basic questions:
- What's the credit limit? Most first cards start off with a $300 to $500 lifeline. That's reasonable.
- Is there an fee to sign up for the card? There's so much competition for your John Hancock these days that you should be able to find a credit card -- even a first credit card -- without having to pay to play.
- What's the grace period -- the time between your statement closing date and when interest begins to accrue? Twenty-five days is golden. Twenty is ideal. Now promise me that you'll set an alarm in your Palm Pilot every month at least a week before the bill is due.
- What's the APR (interest rate)? Here's a crash course in Interest Rates 101. One golden rule of the rate game is this: As soon as you figure out what interest rate you pay, it'll change. So stay on top of this if you ever carry a balance.
- Do I really care if my alma mater is plastered on the front of the card? Lenders want you to have an emotional attachment to your card so that you'll flaunt it at every spending opportunity. They'll use everything from cartoon Fools (guilty!) to tranquil campus scenes to attract your business. It's all just window dressing. Real borrowing relationships are based on much deeper things, such as the small type in that card member agreement pamphlet.
Even after you find the card that feels right, don't put your guard down just yet. There are still a few zingers headed your way. Thankfully, most are easy to avoid if you pay your bill on time (yes, every time) and pay off your balance in full (yes, every month). Even if they raise your credit limit. Even if they say you can take a month's vacation from paying your bill. Even if they send you "convenience cheques" with conveniently high fees.
If you can avoid the credit card debt trap that snares the majority of college students, you'll be seen as quite a catch on graduation day. Treat your credit card as a debit card -- make sure you buy only what you can afford with the money you have in the bank right now. Print out the Fool's Rules of Credit Card Management, cram it in your back pocket, and refer to it in moments of weakness and frat party pizza cravings.
Building a credit history takes time. It's something that you can't really rush. So don't run out and try to get every credit card that you can just to prove that you are creditworthy -- even if you plan to lock them in a drawer and never use them. As with the right job, the love of your life, and Spring Break, you can't rush your way into a glowing credit history.
If they had been giving away cute shoes, Dayana Yochim would have gotten a credit card in college. Instead she paid cash and graduated financially unscathed. The Motley Fool's disclosure policy is color-coordinated with writer profiles.