Personal Finance for College Students

Unit 3: Build Credit

Building Credit History

You may have heard that ‘you need credit to get credit.’  Here are some easy ways for you to establish credit as a student:

  • Open a student checking account or student savings account. Building a relationship with your credit union will work well for obtaining credit after school.  And it will show that you have money and your returned checks can be used for proof of payment to showcase your reliability.
  • Obtain a student credit card. A student card will have low credit limits and are usually available with no annual fee. The best student credit card for you will be the one that does not charge a fee and carries the lowest interest rate you can find. 
  • Have someone cosign for a loan.  A parent or someone you trust can cosign a credit card for you. When a cosigner opens an account with you, they assume financial responsibility for your card. And in the event that you don’t pay your bills, their credit is at risk.

Choosing a Credit Card

When you decide the time is right to get a credit card, there are some things you should consider before you apply. Ask your credit union for help in finding a card that’s right for you. 

Here are a few tips for finding a right card:

  • Recognize your limits.  Think about your financial situation. Can you pay the balance every month? How often will you use the card? What is going to be the most important card feature? And consider what the appropriate credit limit is, including any fees or finance charges.
  • Understand Card Features.  Student credit cards have features and benefits such as special APRs and low credit limits that will help you build a strong credit history.
  • Read the Terms and Conditions.  Before you submit an application, make sure that you’ve read all the terms and conditions closely. If you don’t take the time to read them now, you may pay unexpected fees or APR increases later.

Look for these hidden introductory tricks:

  • The 0% or low introductory rate.  You may get this great discount when you first sign up for the card, but after a few months the APR might jump to 18% or more.
  • Yearly Sign-Up Fees.  You might have no yearly fee when you first sign up with your student credit card, but after a few months you could be charged as much as $50 to keep your account active.
  • Balance Transfer Fees.  That 0% balance transfer fee is a great deal, so you go ahead and transfer the remaining balance from a different credit card. What you may not know is that if you decide to transfer again, you could be charged as much as $35, plus you will increase your interest rate because you now have more money on your credit.

Download PDF: Shopping For Credit

Credit Card Fees and Interest

As a student, you may be tempted to use your card as a source of income.  But before you use the credit card, make certain you understand the costs of fees:

  • Cash advances - Allow you to withdraw cash at ATMs with your credit card, but are costly.
  • Balance transfers - Enable you to transfer a balance from one credit card to another card. Balance transfer options may sound appealing, but read the fine print for hidden costs.
  • Exceeding credit limit - Your credit limit is the total amount of money a credit card company grants you permission to spend on its card. If you go over your credit limit you may pay an over-limit fee. 
  • Late payments - Make your payments on time each month and avoid paying late fees, negative marks on your credit, and increased interest rates. 
  • Minimum Payments - Always make the minimum payment required each month or you may incur a late fee. 
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