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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!
What are the two fundmental principles of Investing 101? Risk and reward. If you’re going to put money into an investment, you have to take the potential risk and the potential reward of the investment. The riskier the investment, the higher the potential reward has to be.
Does this have anything to do with credit cards and interest rates? Of course it does. I want you to find low interest student credit cards, but I want you to understand why it’s not that simple.
Every time a credit card company extends a person a line of credit they’re factoring in the potential risk and the potential reward. You might think credit cards charge high interest rates on most student credit cards because they just want to soak the students for all their worth, but it has more to do with how likely students are to pay their credit card balances.
Interest rates are high on certain types of credit cards for one reason: the people that have been issued that type of card are more likely to flake on their payments, whether that means they pay late or they don’t pay at all. Students are a high risk demographic for credit card companies. According to the standard measurment tools (the credit bureaus), a college student is someone doesn’t have a proven track record of using their credit cards and then paying their balances. They just haven’t had access to credit cards for long enough to prove they’re a safe investment.
The reality is there are a lot of people who just can’t handle credit. They treat it like free money that won’t have to be repaid. They pay late or they don’t pay at all and the credit card company gets stuck with the bill. Most college students represent an ‘unknown quantity’ to the credit providers. Maybe they’ll behave themselves with a credit card, and maybe they won’t. Only a credit history can prove it, and college students haven’t had time to build one.
College students can get higher rate cards and use them consistently as a way of proving their credit worthiness. It may even be in their best interest to carry a small balance on the card and pay it down over time. Yeah, you pay some interest, but just look at it as the cost of doing business. If you can show the credit bureaus you’re trustworthy you’ll be able to get high limit, low interest credit cards down the road that you can use for good purposes like running a business or buying advertising.
All that being said, you may be able to find a student credit card with an interest rate between 8% and 12%. Not bad for a first timer.
Either way, if you pay your dues, you’ll get the best credit cards later.
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A lot of students ask where should they get their funds to support them through school. Student loans and credit cards are two common areas where students look to go with expenditures. I think that both serve their purpose, but you want to make sure that you use them for the right reasons. These are really two different weapons in your arsenal that can go in your favor or against you. It really depends on how smart you are with your spending habits.
Realize first what they are and what purpose they serve. There are so many different types of student loans you can get out there and so many types of credit cards you can get out there too. A student loan is directly related to helping a student with the cost of tuition, possibly school materials, and room and board. It just depends a lot on what type of loan you receive.
A lot of it will also be based on what is the tuition requirement for your school, which can very from a $2,000 to $30,000 a semester. It is important to make sure you know too what rent will cost in your area along with other normal expenditures. Obviously going to New York or California is going to require more money for living standards than going to a school in Utah or Minnesota.
A credit card will also have a lot of different rates and usually have higher interest rates. Now you can find o% APR for a year or six months and it can buy you some time to use these cards. You have to be careful about changing rates. The beauty of a student loan is that you don’t have to start paying until several months after you are finished with school.
A credit card is going to require minimum payments, interest, potentially annual fees and other requirements. A credit card, such as college student Visa credit cards, can also help to build your credit faster than a student loan if you can use it correctly. Also these tend to be less tedious to get as far as requirements, there are many visa credit cards for college students with instant applications and easy approval.
Student Loans Vs. Credit Cards
This answer is decided by looking at what you are going to use it for. Chances are you are going to have a high tuition to cover and it would probably be a lot better to use a student loan to take care of that. If you can get room and board in that then that would be beneficial. You are going to have lower interest rates compared to a credit card and more time to make money before you have to worry about paying it back. This can help you focus on school more and the tasks at hand. You will have plenty of time to make money and start chipping away at that loan.
As far as a credit card goes, I think that these are also necessary. They are great to help you build your credit for the purchases you may make when you begin your career. These are great for everyday purchases like food and clothes. You just have to be aware of what your balance is and how you plan on paying it off.
