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Student Credit Cards

Throughout college, credit card companies are going to court you like nothing else. You're their dream customer: a brand-new consumer with no experience and no money, in a position where the entire world is urging you to consume. If you choose wisely, you'll finish college with a good credit card and an excellent foundation for future credit. If you choose the way the card companies want you to choose, you'll finish with a high-interest credit card, lots of debt, staggering monthly payments, and the credit card company's love and attention for the rest of your life. Here are the things you need to look for to come out your way, and not the credit card company's.

The card's brochure is going to offer you a mess of information upfront, but I guarantee you that what's most important is going to be the least obvious. Ignore the offers of frequent flyer miles, money off on your books, and free gas, and turn to the back. You're looking for the interest rate. No, not the "0% APR" (annual percentage rate) that's plastered across the front. Read the fine print or the boring black-and-white sheet tucked in with all the colorful promo material, and find the real interest rate.

Interest Rate

Student credit cards usually have middling-high rates. As of November 2005, several deals I checked offered rates of 16.99% APR, which is not terrifying—24% to 30%, that's terrifying—but not low, by any means.

But wait, you say. You're holding a deal in your hand right now, and it's offering you 0% APR. What's up with that?

Notice the fine print? 0% is an introductory rate. That means that you pay that rate for the first six months to a year, then the rate bounces up to the regular rate. It also bounces up if you're late with a payment. Don't let the introductory interest rate tempt you. Go for the student credit card with the lowest possible regular rate. Six months is a blink in the lifetime of your credit, and you may have this card at the higher rate for several years.

The information sheet will list several other types of interest. These are:

Balance Transfer APR: The interest you'll pay if you transfer debt from another credit card. It's usually the same as the credit card's regular APR.

Cash Advance APR: The interest you'll pay if you use your credit card to get cash instead ofp aying directly for goods. The cash advance APR is several points higher than the regular APR, so using your credit card like an ATM card is always a bad idea.

Default APR: This is the second most important interest rate. If you're late with a payment when you're paying the regular interest rate, your interest rate will bounce up to the default rate and stay there for a good long time. Default rates are terrifyingly high. For student credit cards, they can be 30.99% and up. You want to find the lowest default rate you can find—and pay your bills on time religiously.

Overdraft Advance APR: If you exceed your credit limit, this is the interest you'll have to pay on the overdraft. Puzzlingly, it's often lower than the regular interest rate.

Variable Rate vs. Fixed Rate

Variable rates rise and fall because they're based on the Prime Rate: they're the Prime Rate, plus a certain number of percentage points. The current Prime Rate is factored into your offer, so if you're offered a student credit card with a 16.99% variable rate and the fine print says that the "purchase APR" (the regular APR) is the Prime Rate plus 9.99%, the current Prime Rate is 7%. If the Prime Rate rises, your interest rises, and you're screwed.

Fixed rates are better because they don't change. You're charged a flat interest rate, and Prime Rate be damned. Because of this stability, fixed-rate credit cards are going to be harder for you to get when you're just establishing a credit record, but try to get one if you can. The security is worth it.

Annual Fee

Most student credit cards won't have an annual fee. Check to make certain, though, and if there's a fee, pass on the card. It's not worthwhile to pay $50 or $100 a year for the honor of having a credit card when there are plenty of companies that will offer you one for free.

Other Fees

These are the one-time fees you'll pay if you're late with a payment, if you go over your credit limit, or if you make an international transaction. Try to get them as low as possible, but don't worry too much about them. Just make all your payments on time and stay under your credit limit.

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