Saturday, November 18th, 2017

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Ask YOUNG MONEY: How can I build a credit history?


I am a sophomore in college and have no credit, whatsoever. I am currently interested in applying for a student credit card. Please help at accomplishing my personal goal of establishing credit. Thank you.


Dear Brian,

Before you consider applying for a credit card I want to make sure that you are employed, even if it’s just part-time. Many people put the cart before the horse and apply for credit without having a way to repay the debts they incur.

Without regular income, I would not even think about applying for a credit card. It is important to establish a good credit record so take things slowly to lessen the chance of creating debt problems and getting negative marks on your credit report at an early age.

Let’s start with some advice from the Federal Trade Commission when it comes to choosing a credit card. Start by reading what’s "inside the box." The box referred to here is the legally mandated, important information that appears on the back of every credit card solicitation and application.

Credit Card marketers are required to place the information inside a box to highlight it to applicants. The information listed includes the interest rate, annual fee, grace period, default interest rates, and transaction fees for things like cash advances or late payments. This is by no means the only information you should read when considering a credit card offer, but it is information you must understand.

When applying for credit cards, it’s important to shop around. Fees, charges, interest rates and benefits can vary drastically among credit card issuers. And, in some cases, credit cards might seem like great deals until you read the fine print and disclosures. When you’re trying to find the credit card that’s right for you, look at the:

Annual percentage rate (APR): The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually, the lower the APR, the better for you. Be sure to check the fine print to see if your offer has a time limit. Your APR could be much higher after the initial limited offer expires.

Grace period: This is the length of time between the date of the credit card purchase and the date the company starts charging you interest. Some companies have eliminated grace periods, which means you could start paying interest literally from the minute you make a purchase. The longer the grace period, the better the deal is for consumers.

Annual fees: Many credit card issuers charge an annual fee for giving you credit, typically $15 to $55.

Application or approval fees: This is a one-time fee that is immediately charged to your card upon approval. I’ve seen these fees go as high as $250.

Transaction fees and other charges: Most creditors charge a fee if you don’t make a payment on time. Other common credit card fees include those for cash advances and going beyond the credit limit. Some credit cards charge a flat fee every month, whether you use your card or not.

Customer service: Client service is something most people don’t consider, or appreciate, until there’s a problem. Look for a 24-hour toll-free telephone number.

Keep in mind that credit card interest rates and minimum monthly payments affect how long it will take to pay off your debt and how much you’ll pay for your purchase over time.

Suppose when you’re 19, you charge $1,000 worth of clothes and CDs on a credit card with a 18 percent interest rate. If you pay $20 every month, you’ll be over 30 by the time you pay off the debt. You’ll have paid an extra $1,400 in interest. And that’s if you never charge anything else on that card!

Best Regards,

Mike Schiano

Mike "The DebBuster" Schiano is a nationally syndicated radio talk show host and book author. His show can be heard via the Web at www.inchargeradio.com. Send your personal finance questions to "Ask the DebtBuster" at mike@askthedebtbuster.com.

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