A Student credit card could be called a beginner credit card or a starter credit card because it is usually the first credit instrument that you will use in your lifetime. You are in high school or university when you get it. It can be in the form of a prepaid credit card or you can get one where you charge debt to it but the card will have a low credit limit. The purpose of this card is to give you the freedom to make transactions that are convenient.
|
||
The second purpose is to teach you the rules of owning a credit card. If you learn the rules and abide by them you establish a credit history, your credit score or your credit rating. They all mean the same thing. It is just that it is called by different names in different parts of the world. Establishing a good credit history helps as you apply to use the debt tools that you will need to use as your financial challenges increase as you grow up.
Prepaid Credit Cards
The rules of this kind of credit are simply that you pay the money first and use it like a debit card. You pay the debt first if you like. For example, you pay $300 to your credit card. You buy a $50 item. That will leave a $250 balance on your credit card. You can continue to do this until you use up the $300 and then you cannot use the credit card to make any more purchases until you put a payment on the credit card. Once you put a payment on the card, the cycle starts over again. This tool is designed to teach you 4 things. First is that you need to stay within a spending limit on your credit cards. The second point is that you need to pay them regularly. Third is that you should pay off credit card every month if possible. A lot of parents use this tool to manage their budget outlay while kids are in school plus teach them the first 3 lessons.
College Student Credit Cards
The rules for this kind of credit card are also quite simple. You are given a credit card with a low limit to start out. You can buy things on credit until you have charged up to your limit. Then you will be blocked from making any more purchases until you pay down your limit. After that you can only charge up to the maximum limit again and then you are prevented from making any more purchases until you pay it down again. You are billed once per month and you will have a minimum payment. The Number one rule is to make at least this minimum payment and make it on time. If you do not, you have failed. You put a black mark on your credit history. This damages your chances of getting more credit from this card or any other form of lending.
The Positive side of Credit Cards
Convenience should be the number one reason for you to have a credit card. They are not just convenient for you they are convenient for retailers. Sellers know that they will be paid if a transaction goes through on a credit card. They know that they are not accepting counterfeit money or fraudulent checks. That means you do not have to prove who you are and lay out a mountain of ID to pay with a check. A lot of transactions occur that are expedited by the use of credit cards. Internet commerce is one example but you will find them in your everyday real life. Credit cards also mean safety in that you do not use a debit card which if cloned can give bad people access to your cash flow accounts. If cloned your credit card data should only allow access to your credit card account. At that point it is the credit card company’s problem that your card security has been compromised. You have no problem and are not responsible for any transactions made by someone who steals your credit card data. It is much harder to deal with when debit card data is stolen.
The Dark Side of Credit Cards
There is no dark side of prepaid credit cards. The problems start when you incur debt. Because you are a first time borrower, you pay the highest interest rates on any balance carried over from month to month. If you do not pay your balance to 0 you are paying costs that are not just high in relation to others but because you have a low income, it is high in relation to your income. If you pay these monies out in interest, it is money that you could use to buy the many things you need at this time in your life. If you have filled out a budget you see that credit cards get their own section in your budget for payments. When you pay off your credit card every month, you would enter the payment as free spending. If you carry a balance you take credit cards beyond convenience and it starts costing you for that service. On your balance sheet, when you carry credit card balances they are entered on the liabilities side. With few exceptions, what you buy with credit cards does not end up on the assets side. You are actually reducing your net worth by carrying a credit card balance.
Your credit history starts with this instrument. Try to learn to manage them early in life. The concepts are basic debt management principles. If you are managing your cards properly their imprint on your budget will be minimal. The same goes for your balance sheet. You do best when they make for no direct entry on either.
Questions? Credit Expert Contact Ask us - We will reply and if it is a really good one we will publish it and its answer in our weekly blog entry. If a lot of folks have the same question we will build an FAQ url or urls on the site.
Summary: Your first credit instrument is usually a student credit card. It is there to teach you to pay on time and stay within your credit limit. One kind of student credit card is a prepaid credit card. You can also start with a real credit card with a low limit. The good side is convenience but there is a bad side to credit cards.
