A credit card is a credit facility, provided by banks that allow you to borrow funds within a pre-approved credit limit. It enables you to make purchase transactions on goods and services. While studying abroad, it is helpful to have a credit card; especially in times of emergency. The latest trends in students show that many of them prefer to stay in the US after graduation. The lifestyle, job prospects, quality of education, weather, etc. make the students stay back. If you decide to stay back, having a good credit history and credit score is important for future financial decisions. And the best way to build good credit is by using a credit card responsibly.
Here we will discuss the benefits of having a credit card and provide guidelines about what to do, and not do with a credit card.
Advantages of having a credit card
Building a good credit: Your credit history will help you to obtain loans for large future purchases like buying a car, or taking a home or educational loan.
Learning to use money: Having a credit card gives you independence but at the same time carries a lot of responsibility. You must learn to use it correctly and safely.
Good backup plan: You may have a cash crunch but at the same time some purchases become a necessity. In emergency cases, credit card solves the problem.
Avoid overdrafts: While a debit card allows you to overdraft your account when paying monthly bills and fees; a credit card, on the other hand, can help to avoid overdraft charges from your bank.
Perks/rewards: Almost all banks provide perks and rewards for using their credit cards.
Other benefits involve:
- Hassle-free shopping experience
- No need to carry cash
- Easy cash withdrawal
- Widely accepted
- Improves credit score
How Student Credit Cards Work
A student’s credit card works in the same way as other credit cards. The card gives credit, limiting the maximum amount of money you can spend on your card. The expenditure you made through your credit card needs to be paid off monthly. Banks give you the option of minimum and maximum amounts you are required to pay off. It is advisable that you pay the maximum amount due.
In case you are unable to pay off the entire amount each month, you will pay interest- additional money on top of the amount you owe to the bank. These interest rates are generally very high, hence it is important to spend wisely and that which you can actually afford to pay off.
However, some companies offer special credit cards for college students; with lower credit limits, and without any previous credit history for approval. But for this, you need to fulfill some criteria-
- Proof of enrollment as a student, part-time or full-time
- Proof of income- a part-time or full-time job
In case you do not have a job companies allow your parent to be a co-signer on the card, as a guarantor that you will be able to pay off the dues with the help of your parent. The card is in your name but you build credit as you use it, but your parents are legally responsible for paying off your dues.
Though this facility is not given by all companies; and may require the co-signer to be settled in the US. So make sure to check all details before accepting a credit card.
The Challenges International Students Face Getting a Credit Card
There are a number of credit cards for college students. But for international students, it may be slightly difficult as there are many challenges involved in applying for and getting approval. Check out the best credit cards for international students in the USA.
Getting a credit card depends on the type of your visa and also if you do not have a Social Security number (SSN). It is important to know in detail the rules and regulations before plunging into the process. First, know the requirements as in the US requirements differ for each credit card issuer.
Most of the time credit card companies require you to provide a social security number while others do not. Holding an F-1 or J-1 visa enables you to apply for a social security number through the Social Security Administration (SSA) and makes the process of getting a credit card smoother.
Another challenge you may face is not having a bank account in the US. It is better to open a bank account before getting a credit card. A bank account helps you keep a track of the money you have and also the money you owe. You know exactly how much you are allowed to spend so as not to land up in credit card debt.
Golden Rules to Spend Responsibly
Holding a credit card should not make you a spendthrift but you should be a responsible spender.
- Never spend more than you have: Credit card debt is a big issue in the US. This is all because credit card holders spend more than their income. Be sure that you can pay back what you borrow, including the principal and interest amount.
- Pay the full balance: It is advisable that you pay the full balance on your card at the end of the billing month in order to avoid paying a lot of interest. It is better not to leave an outstanding balance on your card for longer than a month. But if need be, try to negotiate a lower rate of interest with your card issuer.
- Sign up for reminders & auto-pay: we all lead a busy life and at times tend to forget some important dates such as bank due dates. In order to avoid being a defaulter, you can set reminder dates for your payment or even opt for auto-payment with your bank. Auto payment enables you to pay off your dues on their due date.
- Choose a payment day that works best for you: if you have a job, synchronize your payment date with your salary date and stick to the plan. Because this is the time you will have money in hand and in a position to pay off your dues.
Finding the Right Credit Card
As a student, there will be many companies coming to you with offers of credit cards and each one will offer you great reward points and low-interest rates that suit students. Under the circumstances, it is best you do some research and find the right to build your credit. Here we will discuss some points that you should keep in mind when you finally decide on availing of a credit card.
- Type of credit card— as a student, a student credit card is perhaps the best option for you. Again some of you may choose a secured credit card that requires a deposit to make sure you do not land up being a defaulter. While some credit cards are offered through international companies, others are offered through local banks.
- Interest and fees—look out for hidden fees and interest rates that are initially low at the beginning but increase later to a level so high that you may be incapable of handling them.
- Paperwork and documentation—all credit cards require documentation, and as an international student, you will need to furnish your visa and proof of enrollment at your college or university.
- Opening the account— do your homework well, before opening the account, as your credit score will be linked once it is open.
Security Threats of Credit Card
Before you start off with the application process for a credit card, you should know about the possibilities of security threats. Financial fraud is on the rise and this happens when your information is leaked and a third party gets to use your credit card without your permission.
This can happen in many different ways. One way could be your information being stolen through the physical card. If you lose your card, immediately inform your issuer so that they can block your card to prevent misuse of the card, and will provide you with a temporary card till you get a new one. We all do a lot of online shopping these days. Information is gathered online.
Be careful about where you choose to make purchases on the web. If the website seems suspicious, never put your credit card information. Do you shop from legitimate websites only? Fraud checkers can guide you on this. Never keep your card and PIN in the same place. The last thing you would want is for your card and PIN to be stolen at the same time. Keep your Social Security Number (SSN) top secret. If anyone gets access to your SSN can open credit cards in your name.
Questions that often come to mind
What is APR? The Annual Percentage Rate (APR) is a yearly fee for borrowing money. A percentage of a loan or credit card balance is added on top of what you have to repay. If you make your monthly payments on time, you need not worry about APR.
What is a good credit card interest rate for international students? This is difficult to determine and needs research. You need to compare the rates of different card issuers. As per the record, in December 2019, the average credit card interest rate was 17.30% in the US.
If I don’t use my credit card should I cancel it? You should try to avoid canceling your credit card as it could negatively affect your credit score. Keep it in a safe place and keep building your credit without using it. Also, check with your card provider if there are fees for non-use or any annual fees your card might have.
What can I pay for with my credit card? The answer would be everything. But it is not a good idea to do so. Use the credit card on items you can afford to pay for.
Do I need a Social Security Number (SSN) to open a credit card? Not all companies require it. Check with your issuer on this. Many credit card companies will require you to get an SSN to open a credit card account. Again, there are companies that allow international students to open one without an SSN.
Finally, think of your long-term goals. If you plan to leave the US after graduation and feel unable to maintain the credit card payments, then a student credit card may not be the option for you.
Credit cards help to build up your credit score in the US, which enables you to plan your stay in the US after you graduate. With a good credit score, you can rent an apartment, buy a car, purchase a home, and much more.
A credit card means following a budget, paying your bills on time, and paying at least the minimum monthly payment on your credit card. It does not matter the kind of credit card or student credit card you open, what really matters is it is a great opportunity to learn good money habits and start building credit for the future.
Featured Image Source: CNN