Student Credit Cards. Your Millions Start Here.

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As members of the under 30 crowd one of the biggest topics we talk about is credit and debt. Our parents are, for the most part, baby boomers. Unfortunately that mean they are, for the most part, broke and up to their eyeballs in debt. That’s not a true statement in every case, but it’s the reality for a scary percentage of the over-50 set. A couple of years ago I read that only 1 out of 50 baby boomers are financially ready for a comfortable retirement. Yikes. I guess we better start making some serious money or our parents are going to be in a world of hurt.

Lots of people want to point the finger of blame at the credit card industry as America’s financial downfall. I agree they’re giving us the gun, but we’re the ones pointing it at our own foot and pulling the trigger not once, but several times (For insight into that analogy, google ‘bankruptcy statistics’. You’ll see what I mean.).

Young people should be establishing credit for themselves. Credit is a tool, nothing more. If we’re dumb we’ll use it poorly; if we’re smart we’ll use it to get rich. It’s that simple. If our club-wielding ancestors had given up on fire after they burned themselves the first time, where would we be?

I’ve heard a rumor that Bill Gates started Microsoft with his credit cards. True? I have no idea, but it makes for a good story. I do have a friend whose website made $100,000 in one month thanks to the advertising he was able to do with his credit cards. Without them he would only have been able to accomplish a tiny fraction of that success.

What does this mean for the rest of us? It means we have a few choices: 1) we can buy into the advertising and use our credit cards to buy lots of thing we can’t afford and don’t need, putting ourselves into a hole from which we may never emerge, 2) we can hide our heads in the sand with statements like “I don’t believe in credit cards.” or 3) we can educate ourselves, develop self-restraint, and use credit as a vehicle to help us get to our financial goals a lot more quickly.

Door #1 leads to great friendships with bankruptcy lawyers. Door #2 leads to, well, it leads to being very bored, but probably sleeping well at night. Door #3 probably leads to a few mistakes, but eventually it leads to financial independence.

Here’s how to avoid Door #1 while you’re in college. Open a couple of student credit cards, but keep the limits low. If you’re going to screw up and spend all the way to your limit a couple times, better to do it with a $500 limit and not a $5000 limit right?

Also, get in the habit of paying the balance every single month. If your credit card offers a program where they’ll pay your bill out of your checking account, use it! Anytime human beings can automate good habits into our lives we definitely should. If they don’t offer that program, your bank probably offers something similar through your online bill payer. Use it!

If you’ll get in the habit of paying your bill monthly you set yourself up to use your credit cards intelligently for the rest of your life. I love credit cards. I believe that, used with care, they are the best financial tool in the world today.

No Fee Secured Credit Cards

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Fees. Business owners dream of being able to charge them, customers will do almost anything to get out of paying them.

Why do businesses charge fees? Of course the simple answer is they want more profits. There’s more to it than that though. The reason for fees has more to do with a business minimizing its risk than anything else. A lot of you are looking for no fee secured credit cards. It annoys you to think you’d have to pay anything up front for the privilege of using a credit card. You might say “What does charging stupid fees have to do with minimizing the risk a business faces?” Well, I’ll tell you. And you’ll be surprised you at how reasonable the concept really is (from the credit card companies’ point of view, anyway).

As an example, let’s look at credit card providers. They’re in the business of giving you unsecured (read: risky) lines of credit. Then they have to wait for you to buy things with those credit cards (and who knows if you ever will), and they have to hope you don’t pay off whatever balance you ran up during the month (if you don’t then you got to use their money for free). In other words, a lot of things have to go right for a credit card company to make money off you.

But while they’re waiting for you to spend money you don’t have, and carry that balance month to month, are they incurring any expenses? You bet. Think about it – marketing costs for those TV commercials and all the junk mail they send you. Then when you respond to an offer the sent you in the mail they have to pay people to process those applications, people to answer your questions when you call in to ask when you’re new card will arrive, people to manage the people on the phone, leases on buildings, the list goes on.

That’s a risky venture for the card provider – they might spend a few thousand dollars on you before you ever give them a penny of revenue. And what if you never spend the money or carry the balance? They’re out of luck, and out a few thousand dollars.

So here’s what they do. They look at patterns. They know that for every 1000 pieces of junk mail they send out, a certain percentage of people will respond and apply. Of the applicants, a certain percentage will be approved. Here’s where the fees come into play. At this point if the credit card company could charge $39 or $79 to every person that got approved, they’ve recovered a big part of the upfront cost of acquiring you as a card holder.

It may not stop there. With a lot of secured credit cards they charge a monthly fee just to keep the account open. By now, you know why. It’s just a way to make sure they make at least some money off you in case you’re not using the card they gave you and paying outrageous interest. It’s the same revenue model as so many subscription-based websites we all pay $9.99 or $14.99 per month for.

All that being said, in many cases the competitive nature of the credit card industry has forced them to stop charging such ridiculous fees. Most of the credit cards you apply for won’t require you to pay any fees at all. So, when you get ready to open any kind of credit card, make sure you’re getting something excellent in return for any fees you pay.

Compare Secured and Unsecured Credit Cards

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The credit card industry is one of the biggest, most competitive, and most profitable out there. Credit consumers today have more options than ever and there are a lot factors t to evaluate. One of the first questions is whether to get a secured or unsecured credit card. Some people may not think the choice between secured and unsecured credit cards is a tough one, but it’s not as simple as you might think. There are several angles to consider, but first let’s look at the basic characteristics of both types of credit cards.

Secured Credit Cards

Easy approval, often guaranteed. Great for building credit score and history, or rebuilding after bankruptcy.Requires a security deposit, usually equal to the amount of the credit extended. Often carries a monthly fee to maintain the account. Typically charges high interest rates on purchases, 21% and above.

Rarely offer balance transfers.

Unsecured Credit Cards

Approval based on credit worthiness (score and history). Good for improving your credit if you use them wisely. No security deposit required, limit determined by credit card company (depending on credit score and household income). May or may not charge an annual fee to maintain the account. Cards with rewards such as sky miles often carry annual fees. Interest rates on purchases can range from 9.9% to 21% or more. Often offer balance transfer options with promotional interest rates. It’s obviously easier to get unsecured credit cards with fair credit, and you’d probably rather not have to put down a security deposit.

Basically, unsecured credit cards are the better tool in the long run, but that doesn’t help those people that have bad credit and need some credit now. My advice is that people should get unsecured credit cards with low rates, no annual fee, and a rewards program if possible.

If it’s not possible to get an unsecured credit card, shop around for the best possible rates and try to avoid fees whenever possible. Use the secured credit card wisely for several months and soon you’ll probably get offers from companies for the unsecured variety.

When you get those unsecured credit card offers, look for one with a well-known company and one that offers a low or 0% introductory interest rate for at least six months. That way you get the benefit of using their money for ‘free’ until the promotional period ends. Make sure you pay the balance monthly!