Help a College Kid Learn About Credit Cards

Miscellaneous and Personal Stuff I Must Share
21

I got a credit card through my bank when I started work (34 years ago). It had no fee and charged (if I remember correctly) 27% interest.
As many others have said, I paid the complete balance off every month (which is why I don’t know what the interest is).

After a couple of years, they offered me a higher limit.
Then again a couple of years later.
And so on.

I recently came to Las Vegas with tens of thousands of dollars available on my card. (Because I live in the UK, I notified my company there might be some expenditure abroad - this is an anti-theft precaution.)
I bought a few souvenirs on the card and paid it off when I got back.

I’ve never paid a penny in interest and they keep offering me more credit. :cool:

22

One suggestion: so you don’t get hit with late fees, arrange to pay off the card by direct debit from your bank account. If the card is supplied by your bank then there shouldbe no trouble.

23

Second this strongly. Look for a card with no annual fee and the best rewards (it doesn’t have to be something boring like flight miles-- look for a reward that you will appreciate, like gift certificates to your favorite store). Then treat it like it’s a debit card. Do not charge anything to it unless you have the money in the bank to pay the bill within the month. Look for a card where you can see your statement online and pay the bill directly from your bank account, so you won’t have to worry about a mailed payment arriving late.

24

Amen to that. I just recently managed to persuade the Better Half to cancel his Chase Visa card because its bill came in the middle of the month, when I pay bills on the first. So it would sit there on the computer table, unnoticed, until it was too late. The kicker was when we ended up paying a late fee–on a late fee. Buh-bye to the Chase card after that. :rolleyes:

25

[Edit timeout expired] Also, if you can track your balance online, log in and check on it every couple of days. If you don’t stay aware of your current balance, it’s easy to spend too much and be surprised by a large bill. Know what you are able to pay each month and make sure you stay on pace.

26

I just wanted to pipe in and say that when I got my first credit card bill (this was my first year of college) I was shocked at how much I’d managed to spend in a month. I thought I’d been careful, but even so, it’s really appalling how credit cards manage to delude one into underestimating how much has been spent. Fortunately it was still an amount that I could afford to pay off. But a lot of unversity students found themselves wallowing in debt after credit card companies started handing out the stupid things like candy. Nowadays I only use my credit card for emergencies and try to stick with my debit card instead.

27

Also find out how the credit card company reports to the credit agencies. Capital One, for instance, doesn’t tell the credit agency how much your limit is on the card, they only report the amount you spend. If you have a card with a $10000 limit and you only spend $30 a month on it Capital One tells the agencies that you have a $30 limit. This can drastically impact your credit rating and it is important that you are aware of how they are reporting your information.

28

I’ve found very few places that take Visa that don’t also take Mastercard- in fact, I don’t think I’ve ever seen one. American Express, Discover, and others are less widely accepted, though.

If you go on a trip to a foreign country, it’s a good idea to call your credit card company and tell them about it ahead of time. Otherwise, they may think that the activity on it is fraudulent and freeze your account. It’s a pain (and not cheap) to have to make an international call to them to tell them that the activity is legit.

Make sure you don’t start buying more crap than you can afford- it is an easy habit for some people to get into, and a hard one to break. It is something you do have to be vigilant about when you get your first credit card. Don’t assume it can’t happen to you. It happens to good people, it happens to smart people, it happens to people who have been very responsible in other areas of life, and it happens to people who have done a fairly good job of managing money until they got their first credit card. The reason so many credit cards don’t have annual fees is that people choose these cards, thinking they will pay off the balance every month, but then they get into bad habits and don’t actually do so. If this weren’t common, the credit card companies wouldn’t make much money off “no fee” cards, so they wouldn’t offer them…

This happens a lot. “Buying more crap than you can afford” doesn’t always mean splurging on big-ticket items or expensive trips, or even buying anything tangible. Small stuff adds up- you can get into just as much financial trouble by going out to eat a couple more times a week as you can by buying expensive crap you don’t need. This isn’t a situation where “don’t sweat the small stuff” applies…

Make an effort to make sure your spending habits don’t change when you get your credit card. It might be helpful if you’ve used a debit card until now- use your credit card like you use the debit card. Once your credit limit is higher than your bank balance or what you are willing to spend per month (whichever is lower), ignore your credit limit- that’s not real money. The real money is what you have in your bank account.

Pretty much the same way you pay other bills. The credit card company will mail you a bill every month. You can tear off part of this bill (they will tell you which part) and send it back to them with a check. You can also pay your bill online through your bank (most banks do offer online bill-pay), and pay that way- then, the bank handles the writing the check and mailing it part. Or you can set up an automatic payment from your bank account every month. I don’t really recommend the last one, unless you’re really bad about losing bills or procrastinating on paying them, because if there is a mistake or a fraudulent charge on your bill, AIUI you have a lot more leverage with the company if you haven’t sent them the money to cover it yet…

There is another way to handle this problem, at least if you pay bills online. You can set up an automatic recurring payment from your bank account that you’re pretty sure will be enough to cover the minimum payment on your card. Then pay the rest of the bill when you pay your other bills. That way, at least you won’t get stuck with late fees. This is also a reasonable way to get around some credit card companies’ practice of moving up the payment due date to try to get more money in late fees…

Ahh, Crapital One…

29

Okay, first off, Capital One and MBNA are evil. They have higher fees, higher interest rates, and more catches for the consumer, than other organisations do. I do not recommend going with them.

Fortunately, when I started out, they weren’t around in Canada.

My own credit-card story, or, what it’s like to Do Everything Wrong.

Seven years ago, I was drowning in credit-card debt. I had bought a camcorder and gone to Europe, and when I got back, I could never climb out of the payment hole each month before the next bills came in. More and more of my pay went straight to the credit-card bill, and I had none left for other things, like food. I started to live off the card. Interest on the card compounded and recompounded.

Eventually the stress got to me and I broke down. My work suffered and I was in danger of losing my job (fortunately, I kept it together enough that I didn’t, even though I had some bad reviews).

I went to a trustee and filed a “consumer proposal”, which in Ontario is one step short of a bankruptcy. It is a legal agreement to pay off a portion of the debt in return for forgiveness of the rest.

The trustee took a listing of my assets. He took my card and destroyed it. I was paying off $500 per month (or per pay, I can’t remember). I was also paying high counselling bills to deal with the psychological aftermath.

It was enough that I had to struggle during the month. For five years, I lived raggedly. I basically had one pair of pants, which I would replace when it wore out. I had no credit card, so I was unable to rent a car (or borrow to buy one, not that I had the money for those payments anyways). I went on no long trips. I missed out on the convenience of online ordering and payment–for half of the appeal of the credit-card system is being able to buy things online. I had dialup internet access and a ramshackle home-built computer instead of high-speed internet access and a new computer.

During the runup to my credit implosion, and afterwards, I didn’t date. My self-esteem was low enough beforehand, with all the stress and worry and all, that I couldn’t believe that I’d have a chance. (I certainly wasn’t thinking straight.) And around then, I did miss a chance, though I didn’t find out until long afterwards.

Afterwards, I actually felt better, because I was dealing with the problem instead of hiding from it, but I still didn’t think I had a chance, mostly because I was broke and didn’t have decent clothes and couldn’t afford to go to ‘nice’ (expensive) places. This effectively removed me from the dating pool for eight years.

Now, I am debt-free. I paid off the consumer proposal almost two years ago. I have a MasterCard, which is not a credit card; it’s a prepaid card from MoneyMart, which I load with money when I want to buy something online.

But I still cannot borrow at anything like “normal” rates. The only actual credit card I am able to get is a “secured” credit card, in which you provide a lump sum of money equal to the limit on the card. I am unable to get a standard overdraft, even. Payday lenders, however, will lend to me happily. (Payday lenders are another thread, however. Let’s just say that they’re probably the most expensive form of borrowing in the universe.)

And I still can’t rent a car.

My cureent challenge is to build savings. Then, I can be my own bank, and not have to worry about scraping by or emergencies or borrowing to meet that unexpected expense two days before payday.

I wish I’d known all this when the Bank of Montreal offered me that Mastercard when I was in college. To be fair, the problems didn’t start until much later, long after I’d paid off my student loans, even.

So, to sum up…

Listen to what the others have said upthread, and pay the card off every month!

30

I know everyone has been suggesting a Visa or Mastercard, but I’ll throw a vote in for American Express. I got my Student Blue card from them when I was still in college and it served me great, the main thing I like with Amex is that the online interface is miles ahead of everyone else’s. You can look at graphs of your spending broken down by category, so you can immediately see where the money’s going and how it compares to previous months.

I currently have a Delta SkyMiles card with Amex, so I don’t know how obtainable this one is for a college student, but Amex Clear looks to be a really forgiving card for someone just learning the basics of credit cards in general. No fees of any kind, and a ridiculously forgiving late payment setup could be really helpful if you aren’t sure about your spending.

For any place that won’t take Amex, I use the included debit Visa/Mastercard card that came with my checking account. I try to always be aware of how much I have in my checking account and also to monitor and pay off my Amex completely every month. With complete website access for everything now, there’s really no excuse for not knowing how much you are spending.

31

Umm… aren’t AmEx cards charge cards, not credit cards? That’s a significant difference.

32

What’s a charge card? If it’s like a pre-paid card, then no, most AmEx cards are not charge cards. I have a credit limit and a bill each month for my Amex, just like any other card.

33

True, charge and credit cards are different, but AmEx offers both. The “blue” cards are credit cards, just like Visa or Mastercard. IIRC, it’s the “green” AmEx cards that are charge cards.

And just to make sure I’m clear (and feel free to correct me if I’m wrong), the definitions I’m remembering are:
Credit cards: you have a certain maximum amount (your “line of credit” or “credit limit”) that you can charge to the card. Each month, you get a bill showing your balance, and you get charged interest on that balance. You can pay as much or as little (down to the minimum payment) of the balance as you want.

Charge cards: May or may not have a limit. But the balance must be paid off every month. As I understand it, these usually don’t charge interest on purchases, but do have annual or monthly fees.
And for all the people pushing the “pay off the balance every month” tactic, while that is good advice, it does depend on the credit card having a grace period. Most (but from my understanding not all) cards give this as a buffer between charging a purchase and accruing interest on that purchase. The period is usually one billing cycle. And it usually requires that you not carry a balance over from the month before (so if you carry a balance, new purchases get interest charged immediately). These details should be spelled out in the card’s terms and conditions. If a card doesn’t offer a grace period, you should shop around for one that does.

34

My Dad is a bankruptcy agent; my Mom and him have one (maybe two) cards, pay them off every month, and he keeps all his credit card receipts to corrolate each one with the charges on the bill at the end of the month. I admit I don’t do the last one, but like everyone says, the first two are super-important.

Don’t settle for anything horrible, but I’d get a card sooner rather than later if I were you; my brother is rather disorganized, but he seemed to have a heck of a time getting a card after leaving university, despite them practically begging him to take ten while he was there.