First Credit Card? 8 Important Tips

College student with credit card
A Washington State University student with her credit card at a bar near campus.

To you college students out there: beware. Credit card companies prey on you like sharks on tuna. They offer you high interest credit cards, knowing that you have little or no income, and that you want things. You want electronic gadgets and cool clothes, and you don’t always have the foresight to control your impulses or see where those purchases will lead you a few years down the road.

A study by student loan provider Nellie Mae found that college freshmen carry an average balance of $1,585. That average balance mushrooms to $2,864 by senior year. Many student credit cards carry high interest rates and heavy annual fees. What this means is that credit card issues are making money off you – a lot of money – and it’s worth the risk to them of the occasional college student gets in deeply over his head, and ends up deeply in debt, and with a ruined credit rating.

These companies are not your friends, and the credit cards they offer you are not rewards, or gate passes into an adult world. They’re the apples on the tree, so watch it.

On the other hand, using a credit card responsibly will help you begin building a positive credit history that will serve you well later in life.

If you’ve recently received your first credit card, or are thinking of applying for one, here are some tips to keep you out of the deep, dark waters of debt:

1. Yes it’s a cliche’, but the devil really is in the details. Read the fine print. Know your credit card’s interest rate, annual fee, due date and grace period. Know what the penalties are for late payment.

2. Beware of zero percent intro rates. These are teasers to get you to bite. You might thing, “zero interest!” and end up spending more than you can repay. When the introductory rate expires, the interest rates shoots up, and so does your balance. Zero interest is great, but it’s not a license to spend, and if it leads you into a usurious interest rate then it’s just a trap.

3. Learn how interest works. Do some calculations with interest rates. See what happens when you take a $300 iPod, $18 pizza delivery and $60 shoes, and add a 23% interest rate, compounded monthly. You might be shocked. So math is good for something after all, huh?

4. Set a budget and don’t charge more than you can pay off every month. Pay off your balance in total every month.

5. Pay on time every month. A single late payment can cause your interest rate to skyrocket. Yeah, the credit card companies are not as understanding as your professor. They won’t let you off the hook if you’re late. The real world can be ugly like that.

6. Don’t exceed your credit limit, even if the limit is low. Going over your limit can incur fees, and cause your interest rate to go up. Funny how that rate always seems to want to go up, and never down… Credit cards are the only thing exempted from the law of gravity.

7. Consider a secured credit card. You deposit a certain amount of money – $500 is typical – in an account with the credit card issuer, and that gives you $500 in credit. You might think, why bother? I can just spend the cash. True, but there are some things that you need a credit card for, for example a car rental or buying something online. And a credit card can be handy in emergencies when you don’t have cash in your pocket.

8. Don’t apply for more than one card. It’s actually good for your credit score to have two to three cards at most, use them regularly, and pay them off in full every month. But at this stage in your life those extra cards will just be temptation that may turn into a ball and chain. Stick with the one card and use it responsibly, and that will get you off to a good start with your credit history.

Happy buying, and good luck.