1) Freebies
Credit card companies are experts at preying on vulnerable college students who may be strapped for cash and looking to acquire any free item that they can get their hands on. As the famous quote states, “There ain’t no such thing as a free lunch.” This is definitely true in the credit world, since the promotional offers, which typically include t-shirts, water bottles, or food coupons, are usually distributed in exchange for a completed credit card application. It’s never a good idea to apply for a credit card solely for the purpose of receiving a free trinket in return because the card can end up costing you way more than you bargained for through interest, fees, and negative marks to your credit file if used irresponsibly.
2) Minimum Payment
Once you have an outstanding balance, it may seem tempting to only remit the minimum payment due each month. However, doing so will only dig you into a deeper hole because this amount typically only covers the interest, while the principal remains untouched, and the outstanding balance will continue to rise as interest accrues each month. Instead, you should carry little to no balance at all times to avoid getting caught up in the minimum payment trap and spending an excessive number of years paying off a balance that greatly exceeds the amount of the initial purchases.
3) Cash Advances
Instant access to a substantial amount of cash seems fantastic (especially if you don’t have to pay it right back), doesn’t it? Think again. Cash advances are typically accompanied by a higher APR and transaction fee that may not apparent to you without carefully reviewing the terms and conditions. Using your credit card like an ATM card to make withdrawals not only fosters irresponsible spending habits, but could possibly dig you into a deeper hole than you bargained for. This is especially true if your available balance is low and you exercise this option to make a small purchase without considering the other fees that may follow. Suddenly, that item from the grocery store ends up costing you three times the amount of what you actually paid for it as a result of a penalty APR and fee applied by the creditor when you exceeded the available credit balance.
4) Hidden Fees
If you fail to read the fine print, a “gotcha” is bound to appear sooner or later. Important items to understand include:
Rewards (and restrictions) Introductory Offers Late Payment Fees Dormancy Fees Annual Fees Grace Periods Minimum Interest Assessed Customer Service Fees
The introductory offer of 0% interest for the first year may be worth it only if you plan on paying the balance in full before the promotional period expires. If you fail to do so, you may receive a statement after the thirteenth month that includes retroactive interest on purchases from the prior year.
5) Statement Review
Since credit card companies are managed by individuals and not systems, they are subject to human error. Small mistakes can roll over into your credit card statements, and may go unnoticed if you fail to conduct a thorough review of your activity each month. If you discover an issue with your monthly statement, contact the creditor immediately and provide any supporting documentation needed to remove the inaccurate information.
6) Credit Limit Increases
Creditors sometimes grant credit limit increases to those who exhibit responsible use over an extended period of time. Unless it is absolutely necessary to do so, refrain from accepting additional credit. The offer may boost our credit utilization initially, but could also open the door to unnecessary expenditures. Obtaining a credit card isn’t necessarily a bad thing when you enter college, but it is important to use it responsibly as a credit building tool and remit timely payments to avoid debt-management issues in the future.
