A Few Notes

Before you get started, there’s one thing you need to drill into your head: A credit card is NOT FREE MONEY!  You still have to pay for every purchase you make—just not right now.  Once the end of the month rolls along, you’ll get your statement, and you’re expected to pay in full.  If you start the habit of doing so, you’ll be less likely to live beyond your means or get a nasty surprise when you open your bill and remember that you bought pizza for your entire sorority with your credit card that one night and no one chipped in.  If you start off only making minimum payments, your credit card debt could soon rival your student loan debt.

That said, there are a couple of cards directed toward college students that can help you along.  You’ll need your credit score for a lot in the future, including securing a job and applying for your first home.  Time is your best friend in establishing a high score, so you want to get started early and maintain good habits from the start.

CitiForward Card for College Students

The CitiForward Card for College Students is recommended because it rewards you for good behavior.    If you stay under your credit limit and pay your bill on time for three consecutive billing cycles, your APR could be lowered by up to 2%.  That could mean a lot to you down the road if an emergency arises or your credit somehow gets out of hand.  You’ll start off with 0% APR for the first six months (but check the fine print to see what could jumpstart the APR ahead of time), and you’ll get 5000 bonus reward points for choosing paperless statements within your first three months.

Citi mtvU Platinum Select Visa for College Students

The Citi mtvU Platinum Select Visa for College Students is my personal choice.  Here, you also get 0% APR for the first six months, and there’s no annual fee.  You get 25 Thank You rewards points for each month that you pay on time and stay under your limit, and you get up to 2000 Thank You points twice a year for having a good GPA.  You’ll get 250 points for a GPA of 2.5-2.99, 500 points for 3.0-3.49, 750 points for 3.5-3.99, and 2000 points for a 4.0.  Sounds like great incentive to be studying rather than spending!  You’ll get closer to rewards for free.

AccountNow Prepaid Visa

If spending too much would be a temptation for you, consider a prepaid card, like AccountNow Prepaid Visa.  There is a $9.95 monthly fee, but you have a $10,000 balance limit (meaning you can prepay up to that amount), and since it’s prepaid, you can’t go over your limit or get stuck paying finance charges.  You also get free bill pay and free Credit Builder—while it’s not technically a credit card, your payment history will be reported and will affect your credit score (hopefully boosting it).

Your best bet is to save your credit card for emergencies only, but it happens to all of us—that dress is just too cute or you have no cash but your friend flew in to hang out for the weekend.  The key is to choose the right card and be responsible about your spending.  Use your credit card as a means to build credit itself, and try not to spend more than you can pay off when your bill arrives.

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So which type of rewards are you interested in? The most common programs revolve around travel, savings, and cash-back. American Express has cards at the top of the list in all categories, including their Membership Rewards card. You’ll find the most variety of rewards with this one, but there is an annual fee to consider–will your rewards outweigh it?

Citibank has their Thank You program that has been compared to American Express Membership Rewards. They offer similar rewards, but you have to earn more points to redeem them with Citibank. Thank You has the edge in my opinion, though, because there are no annual fees, you get bonus points if you have a checking and/or savings account with them, and you can redeem your points for a credit towards your Citibank credit cards and student loans.

Travel Rewards

If you travel quite a bit, Starwood Preferred Guest Card by American Express comes recommended from MSN Money. There’s an annual fee, but you can choose which airline you want to redeem your miles with. Capital One No Hassle Miles offers 1.25 miles for every dollar you spend, and there’s no annual fee, no blackout dates, and no expiration date. If you don’t mind an annual fee, the Capital One No Hassle Miles Ultra card gives you 2 miles per dollar for $39/year.

Savings Rewards

If saving money is a priority, American Express offers Fidelity Investment Rewards, Fidelity Retirement Rewards, and Fidelity Investments 529 College Rewards. With each one, you’ll have 2% of your purchases deposited into a corresponding savings account with Fidelity, with no fees and no rebate cap. You can save as much as you’re able to.

Cash-Back Rewards

If you’re not a traveler and your own savings arrangement is working just fine for you, a cash-back rewards program might be the best choice. Not to be outdone, American Express comes recommended at the top again with the Blue Cash card. You can get 5% back on purchases at the grocery store and gas station, and 1.5% on all other purchases with no rebate cap. Discover More will give you 5-20% back on certain online purchases with no annual fee, and Chase Freedom will give you 3% back on gas and food for your first 6 months with them (and 1% after) with no fee and no cap.

Rewards Restrictions

However, there’s always a catch. First, most of these rewards are only redeemable if you’re paying off your balance in full every month. And not only do you have to spend a certain amount to offset annual fees and earn the most points, but you may also have to spend a certain amount to qualify for the highest rebate percentage, or even to be able to redeem the rewards at all. For example, with American Express Blue Cash, you have to spend $6500/year to get 5% back, otherwise you only get 1%.

But if you know you spend enough, these cards can definitely be worthwhile. Be sure to read the fine print and watch out for any restrictions, expiration dates, or changes to the terms of the programs–they can occur quickly and with little or no notice. Don’t apply for too many cards at once just to get the rewards, as that can hurt your credit score, but do stay on top of your available rewards and milk them for all they’re worth!

Bonus: If you don’t spend enough to qualify for these credit cards, some banks offer rewards on debit purchases if you have a checking or savings with them, such as National City. Do some investigating and you’ll be sure to stumble upon rewards program that don’t require getting a credit card.

Not necessarily.  0 APR cards can be extremely beneficial; you just have to be aware of all the fine print.  For example, take a look at what the normal interest rate on that card is.  If it’s outrageously high, you might want to avoid their tempting introductory period offer.  If you have a balance left on your card after that time, interest will start to accrue at their normal rate, and in some cases, you might be charged all of the interest you would have been paying if there was no 0 APR offer.

Interest may start accruing if you miss any payments during the introductory period, as well.  You might be four months along into a six-month 0 APR agreement, but if your payment is late, you’ll start paying interest and late fees right away.  You might be successful arguing your way out of it, but your chances are low, and if your creditor does agree to waive the fees one time, that might be all you get.

If you’re considering doing a balance transfer to a 0 APR card, find out if the 0% applies only to the balance transfer or if it applies to new purchases made during the introductory period as well.  You don’t want to be surprised if you buy something with your credit card and suddenly find interest charges on your next statement.  It might be a good idea to use the card purely for the balance transfer.  A suspension of interest charges can make the balance easier to pay off, but adding new purchases will set you back, interest or no interest.

As long as you understand all the rules, you can use 0 APR to your advantage.  Don’t get caught skimming the fine print; you’re the only one who will be hurt!  It can be very easy to suddenly set off the interest charges before the introductory period is over, and you could end up defeating the entire purpose of getting the card in the first place.

In order to qualify for unsecured credit, you must already have a high credit score, and the only way to do that is to be responsible with your finances.  A positive credit history will show that you have not made any late payments, defaulted on any loans, filed for bankruptcy, etc, and that you’ve had open accounts for quite some time.  The longer your positive history, the higher your score is likely to be.  When you’ve proven that you are a dependable borrower, lenders are more willing to take the risk of allowing you an unsecured line of credit, which also comes with lower interest rates.

With a secured line of credit, you need to provide security for the lender, and this is generally in the form of opening a savings account that is tied to the credit line.  The credit limit is then determined by the amount that you deposit.  How is this different from a debit card?  You can establish and/or rebuild your credit score.  If your score is low for any reason, you may be more likely to qualify for secured credit.  The lender is assured a return on their investment by insisting on the savings account that essentially pre-pays for your purchases, as well as charging you an annual fee and a high interest rate.

To make sure you can qualify for an unsecured line of credit in the future, you can use a secured line of credit now as a way to build your score.  Secured credit is obviously less desirable due to the restrictions and fees, but it’s easier to qualify for when your score is low.  If you manage it well, you can use it to your advantage and get out of your rut and back on track.

One option is a payday advance loan.  This can be helpful when you have an unexpected emergency or a bill that is due but you’re low on funds and won’t receive your next paycheck until it’s too late.  The advantage is that you can have the funds available to you quickly, usually in less than a day.  You are easily approved because the lender does not run a credit check.  Not only will an inquiry not appear on your credit report, but if you can pay the loan back on time, it can help begin to improve your credit.  Your only requirements are generally to provide proof of employment and usually pay a small fee.  The fee amount will vary, but most tend to average $20 or less.

You can get into trouble, though, if you are unable to pay the loan back on time.  Usually, the time frame is only a couple of weeks.  Since it is a “payday” loan, you are expected to repay in full from your next payroll check.  If you can’t do so, your interest rate could be 36-40%, and suddenly your problems are worse than before.  Your loan may have been relatively small (most payday loans top out around $1,000), but you now could have to resort to another loan to pay this one off, as most payday borrowers do.  It’s a vicious cycle that you must be careful not to start.

Your other option for a bad credit cash loan is a secured loan.  You may be able to qualify for an unsecured loan with bad credit, but it will come with a high interest rate.  An unsecured loan will have a lower interest rate, but the downside is that you must provide collateral, any properties or assets that you can offer the lender as security for their investment.  You’ll have a longer period of time to pay back the loan, but if you are unsuccessful, your credit can be severely damaged and the bank will claim whatever you put on the line for collateral.  If you put down your home, for example, and default on the loan, you’ve now risked a serious loss.

Bad credit loans can help you.  The information here should not scare you but rather show you the very real risks.  If you use these loans, they are best considered as a temporary fix to avoid late fees, missed payments, and collections, or as an initial step in your get-out-of-debt plan.

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