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UNDERSTANDING CREDIT CARDS
Let's get the basics down about what credit cards are, how they work, and what features different credit cards have.
There are three major types of cards that all get called credit cards:
> Credit Card: A card that lets you make purchases and then allows you to either pay the entire amount of what you’ve spent in a given month, or just a portion of that amount, with the rest to be paid later, with interest.
> Charge Card: A card that lets you make purchases like a credit card but requires that you pay the entire bill in full at the end of the month. In other words, you can’t shift your balance and pay some now and some later.
> Debit Card (or Check Card): A card that’s linked to your bank account and that allows you to make purchases without using cash. Every time you make a purchase, the amount of the purchase is deducted from your bank account and you can’t charge more on the card than you have in your account. Debit cards are accepted wherever you see the logo featured on the card—if it’s a MasterCard, then you can use it wherever you see the MasterCard Logo.
Beyond these distinctions, each credit card comes with a particular set of features and fees, and it’s important that you know what they are and how they affect you. Check out the table below to get an idea of the main things you should check about each credit card you’re considering.
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Annual Percentage Rate (APR)
| This is the interest rate that will be charged to any balance that you revolve on your card—i.e., if you don’t pay your monthly balance in full, a % will be added to the revolving balance when your bill comes the next month, and so on. |
You want your APR to be as low as possible. Be especially careful because often credit card companies will give you a low APR for the first several months, and then hike it after that.
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| Annual Fee |
An annual membership fee. |
You can definitely get a credit card in college without a membership fee.
| Grace Period |
The number of days you have after the end of one payment period to pay your balance in full and avoid interest charges on new purchases that you made. |
25 days is standard and you shouldn’t get a card that’s less than that. |
| Late Payment Fee |
Amount you’ll get charged, on top of any interest charges, if your payment is late. |
Usually around $20-$25. |
| Incentives |
Most cards come with incentives. For each dollar you spend you might get frequent flyer miles, free phone minutes, or just dollars that you can spend on whatever you want.
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You can usually get a bonus for getting a card for the first time—such as 10,000 frequent flyer miles. | |
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For more helpful tips and proven strategies from students and recent grads on applying for financial aid, understanding and comparing financial aid packages, maximizing your offer, managing your money at college, staying out of credit card debt, and much more, buy the Students Helping Students® guide titled GETTING THROUGH COLLEGE WITHOUT GOING BROKE, available at bookstores and online stores, such as Amazon.com.
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