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Credit Card FAQs
More students have credit cards than ever before. However, most students do not understand the terms of the credit cards they carry. What's more, students are going into debt on their credit cards. Easy access to funds to buy what you want when you want can be a huge temptation. But take it from many students who didn't use credit wisely, "when you're a student, live like a student so that when you graduate you won't have to”.
1. What's That Card?
ATM - Allows you bank any time of the day and on weekends. You can make deposits, withdrawals, and transfer between accounts. Keep in mind that some banks may charge you a fee for using their ATM machine. To avoid a fee, get a list of banks within your network.
Debit - Acts as an ATM card and allows you to use it to make purchases right out of your checking or savings account, just like writing a check. Keep in mind that some stores can charge you a fee to use your debit card. Also, unlike a credit card, the money is withdrawn from your account immediately.
Credit - The good news is credit cards are accepted just about everywhere. Unlike ATM and Debit cards, your credit card allows you to borrow money to pay for things and you pay your credit card company later. As a consumer, you are allowed to pay your card off in full, or only make a partial or minimum payment monthly. Keep in mind that if you do not have the money to pay off your card when you get the bill, you will be charged interest (also called a finance charge) and the items you purchased will end up costing more then what you paid. In addition, if you cannot pay the minimum payment monthly or you do not pay the bill at all, it will negatively affect your credit.
2. What is the CARD Act?
The Credit Card Accountability, Responsibility, and Disclosure (CARD) law took effect in February 2010 and it significantly changes credit card availability for those under the age of 21 in an effort to protect students from getting into debt by either requiring a $500 credit limit or a limit that is 20% of your annual income. A co-signer may be required.
3. What are Some Tips for Getting Credit?
Before you get a credit card, be a good consumer and investigate your options, especially relative to interest rates and annual fees. Determine what the interest rate will be if you are not able to pay in full for your purchases each month. Is it fixed or variable? Keep in mind that some credit card companies have one interest rate for the first year and hike that rate up when the first year is over. Also, if you are hoping to transfer balances from another credit card(s) in hopes of consolidating your cards, be sure to verify that the interest rate on balance transfers is not significantly higher than the one for current purchases. Finally, some credit card companies charge an annual fee to use their card. Often, these cards have other benefits that are attractive, like airline miles or cash back. Determine if you will use the card enough to warrant paying for that cards use.
4. How Can I Improve My Credit?
Responsible use of credit will help you achieve various financial goals throughout your life such as applying for a college loan, buying a car, and securing a mortgage. If you have misused credit, it will undoubtedly affect your FICO score and will appear on your credit report for up to seven years. Begin to repair your credit by developing a spending strategy and starting to pay off your debts as quickly as possible. As you pay off your debts, your credit rating will begin to improve. Some suggestions to repair your credit are:
- Contact your creditors - Truthfully explain your situation and ask for a reduced payment plan. Let them know that you are willing to repay the debt, but don't make promises you can't keep. Many will accept a lower payment rather than no payment at all.
- If you are late on a student loan payment, inquire about a deferment or forbearance.
- Start to pay off your past due accounts.
- Wait until the credit bureau removes the bad ratings from your report before applying for more credit.
- Consider talking with a not-for-profit credit counseling service to help you manage your situation. The National Foundation for Credit Counseling (NFCC) (www.nfcc.org) is a nationwide organization that helps consumers take control of their finances. The local NFCC chapter in New Hampshire is Green Path® Debt Solutions.