College Students Have Their Pick of Credit Cards – and It Pays to Be Picky

Welcome to that time of year when college campuses are full of credit card marketers offering all sorts of freebies to get freshmen and returning students to sign up for their cards. No matter what come-on is being hawked – be it a t-shirt, Frisbee, baseball cap, free pizza, subs or candy, beach chairs, iTunes or phone cards – students would be wise to compare the actual credit card deals before they apply.

Here are a couple that I think are excellent choices for college students who can be trusted to manage their money:

• The Citi Platinum Select Card for College Students comes with a 0% APR for 6 months on purchases, cash advances, and balance transfers. There’s no annual fee, zero liability for unauthorized charges, with typical online management tools and information about credit. However, students should be forewarned: The credit is not free! There’s the typical 3% fee on cash advances and balance transfers, so it’s not as though getting cash or transferring balances is without cost - although the lesson of transferring a balance and then paying it off at 0% over six months would be worth a lot more than what's taught in most college classes, imho.

Students who can charge wisely can use this card to pay for books and their initial living expenses, but  still have a little time to pay off the bill. They better! After the 6 months are over, the rates on purchases and balance transfers goes to 12.99%,* which is a low rate for student cards, but the cash advance rate climbs to 19.99%. If they pay late, go over the credit limit, or bounce a check they send in for payment, the interest rates all go up to 28.99%.

Tip: As I was finishing off this blog, I clicked to close the Citi application and got a message that said, “WAIT BEFORE YOU GO … complete an application and get a $50 statement credit.” Now that’s a valuable freebie!

• Commuting college students may really benefit from the Discover Student Open Road Card, which offers a generous 5% rebate on the first $100 in gas and car maintenance that is charged in each billing period - plus a 0% introductory rate on purchases for six months. After the six months, the rate goes up to 14.99%.

In case they do end up carrying a balance, I generally prefer to see students get the lowest rates possible. Still, this card's rate is fairly typical for college cards, even at two points higher than the Citi card, and the 5% cash back can sure help with fuel costs. Of course, carrying a balance at 14.99% wipes out the benefit of the 5% cash back on gas. Students need to understand this before they start charging.

Discover also offers rebates of up to 1% on other purchases, which are redeemable in amounts as low as $20. There’s no annual fee, 0% fraud liability, average fees, and if the bills are paid on time, this student credit card will help build a positive credit history, even if someone’s credit standing right now might be described as only good or fair.

A Card College Students Should Avoid Like the Plague
It's the MasterCard from the University of Michigan Alumni Association, which boasts, “We’ve crammed for you. Get a backpack full of benefits with this credit card.” Read a little further and you’ll see that the advertised the benefits are nothing of the sort. Instead, they’re typical features of all student cards: No annual fee or fraud liability, 24-hour customer service, and online management tools and credit education.

There is no introductory rate for purchases or cash advances, and the introductory rate on balance transfers is 4.99% for six months. The interest rate on purchases will either be 9.9% or 15.99% -- “based on your creditworthiness.” In other words, the alumni are more likely to get 9.9%, while the students get 15.99%, three full points higher than the Citi card, which is not affiliated with any school.

You might think that cards affiliated with a university would offer far more favorable terms, that the schools and alumni associations would do whatever they could to negotiate excellent deals for their students, as well as for themselves. I’m very sorry to say that you’d be wrong.

As Jessica Silver-Greenberg and Ben Elgin detail in their excellent BusinessWeek article, “The Credit Card Hustle,” multi-million dollar deals abound, with few benefits to students. For example, the University of Michigan Alumni Association’s contract with Bank of America means “the group gets 0.5% of purchases made on school-branded cards. In addition, the organization receives $6 a year for every active student account, vs. $5 for each alumnus account. The deal guarantees the Michigan alumni association $25.5 million over 11 years.”

If you’re wondering where the universities fit in, sometimes they get money, and as the authors report, “Schools usually approve the contracts and provide access to student information such as e-mail addresses and phone numbers. Some schools also allow on-campus hawking of credit cards through T-shirt giveaways, phone campaigns, and in-store promotions.”

The bank and the alumni association make out just fine, but at what cost? Instead of offering the best deal out there, they’re taking advantage of the students who should say NO! to deals like this and instead, choose credit cards that truly offer them benefits. For more info on how students are being taken advantage of by their univestities and its alumni, read “Selling Students into Credit Card Debt.”

Cart Before the Horse?
If the college students in your life might need some credit education, I suggest that these three articles be required reading … before any credit card applications are submitted:

1. How Credit Works
2. Credit Card 101 for College Freshmen
3. How My Credit Usage In College Impacted Me After Graduation

With a little know-how and a fair amount of self-control, college students can take advantage of some great credit card offers – better than what many of the rest of us can get! Issuers want to be the first one in a student’s wallet, in the hope of a long and prosperous financial relationship .. and parents who will bail them out if they mess up.

As far as many of us older folks, there’s more of a credit history … and more reason for them to be cautious. But if you always pay you bills on time, winnow your debt down as low as possible – to 10% of your available credit, ideally – and take some other steps to improve your credit score, you, too, will get great offers, just like the college kids!

*All rates are as of today.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 24 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Comments

[Ilya Bodner]

Be careful about the credit card 101, at Initial Underwriting we find that a lot of people mix up business credit cards and personal ones. This is the knowledge that is shared with some small business owners.....

A true business credit card is a line of credit that is taken in the name of the business, under the business' credit. Activity, whether good or bad, is reflected on your business' credit report through D&B and other financial institutions, and the liability for any debts incurred and bills owed is with the business.However, some companies out there offer "business" credit cards which they require a person guarantee for. These institutions will often ask for a personal guarantee, and will almost always ask for a social security number from the person applying for the card.

If this is the case, the credit card is not a business credit card, but is simply a personal credit card which is used for the business. The business is not liable for bills and debts - you are. When applying for a credit card for your business, watch out for areas asking for your SSN (and not your TaxID or EIN) and be wary of any credit card that asks for a personal guarantee. By ensuring that your credit card is in the name of your business, you can help to build your business' credit, while avoiding creating problems with your own.

Many companies offer a list of credit cards that are issued under the business name only. Those lists typically run $300-$900, depending on the quality of the information inquiring. I would suggest starting your search online via google or yahoo. Search for "strong business credit" (just like that in quotes) to find services that sell the information.

Good luck,

Ilya Bodner
Small Business Owner
Initial Underwriting Group

[climate]

Initial Underwriting Group is a scam!!!

http://centralohio.bbb.org/WWWRoot/Report.aspx?site=49&bbb=0302&firm=70008621