Which Credit Card Is Right for You?

By Emily Davidson, TrueCredit

You've seen the ads and been tempted by the giveaways -- but how much do you really know about credit cards? Wading through offers to find a credit card that suits your student lifestyle can be tricky. If you know a little about how credit works and your options, you can start your credit career off on the right foot.

Here's a crash course in credit cards: 

Statistics - The prevalence of credit cards among college students has been growing fast over the last few years. According to Nellie Mae, 83 percent of undergraduate students in 2002 had credit cards, a 24 percent increase in credit usage from 1998. Plus, undergrads now have a whopping 4.25 credit cards to their name on average. There's a downside to all this credit mania - the number of bankruptcies filed by people under 25 is also escalating, up 33 percent between 1991 and 2000. Now that you know the credit stats, let's move on to some of the details.

Economics - Think you're ready for a credit card? Opening a credit account has its benefits: you'll have access to emergency funds, you can start building your credit history and your purchases are protected if damaged or stolen. It also has its dangers: you can easily rack up serious debt, interest rates can cost you and you might damage your credit history if not careful. Opening a credit account is only a good idea if you are sure you can use it responsibly.

Accounting - How can you find the card that is right for you? There are four major factors to take into consideration when looking at credit card offers:

• Card Type - Credit cards come in all sorts of shapes and sizes. Standard issue financial institution and bank credit cards are most common. Credit unions are another good source and will often offer equivalent rates. If you don't qualify for an ordinary credit card, investigate secured credit cards that use a savings account as collateral.
• Annual Percentage Rate (APR) - As a student, your interest rates will probably range between 10 percent and 18 percent. This is higher than the rates an established borrower would receive but better than the rate for people with poor credit histories. Read the APR offer closely to the terms for the introductory rate. The lower the rate, the less your credit spending will cost.
• Annual Fees - Most standard credit cards don't come with annual fees. Some premium or reward cards, such as airline mileage cards, charge annual fees. Look at the small print disclosure to see if your card has a hidden annual fee. Also keep an eye out for excessive late fees, transaction fees and over-limit fees.
• Grace Period - The grace period on a credit card is the amount of time between when you make a purchase and when interest is applied to the purchase. For many cards, the interest-free grace period is about 25 days. Cards with small or non-existent grace periods will cost you more.

History - Once you start using your new card, it's a good idea to check your credit history online to see if the account is being recorded correctly. Your credit report should have accurate information about the account's name, open date, balance, monthly payment and credit limit. After a few months, you'll want to check again to make sure your payment history is being reported properly. Late payments can damage your credit score for up to seven years and can lead to problems receiving new credit in the future.

Philosophy - The lethal student combination of a limited income and a lot of opportunities for spending makes it easy for young credit card users to end up in deep debt. Using your new credit card to pay a regular monthly expense (like gasoline or cable) is a good way to start; you'll know what to expect from your bill and can pay it in full each month. Having a conservative credit philosophy will help you graduate with your debt under control.