Student credit: APR, Grace Period and Transaction fees

2006-01-19

Getting a credit card while you are still a student is a good way of learning how to balance your budget. It is also convenient and your student credit card will help you build a credit history if used responsibly. There is however a lot of things to consider before you apply for a student credit card, and your should always compare several credit cards before choosing which one is best for you and your need. Finding the student credit card that really offer you the best conditions is easier if you learn a little about the words and terms used by credit card companies. This way, you will end up choosing the best student credit card. Many credit card companies will offer you credit cards with conditions that look very good at a first glace, but that turn out to be really nasty if you read the fine print and understand all the fancy words and abbreviations used. So, do you know what APR, Grace Period and Transaction Fee actually means and how it will affect your economy when you choose to use a student credit card? If not, continue reading.

APR stands for Annual Percentage Rate and is a way of measuring the interested rate for your credit card. If you have a credit card with an APR of 15 percent you will, theoretically speaking, owe the credit company $ 1,150 after 12 months if you initially charged $ 1000 on the credit card and didn’t pay it for one year. The APR is however highly theoretical, because you should never refrain from making payments for 12 months. Not paying your debts during such a long time would most likely make the credit card company close your account and turn over the debt to a debt collector. Also remember that the monthly finance charges on you student credit card will not be 15 percent just because the APR is 15 percent. Instead, it will be approximately 15 percent divided by 12 months, which is around 1.25 percent. You will therefore only be charged an additional 1.25 percent of your balance each month. Knowing the APR is however a good way of comparing different student credit cards. Be careful when a credit card company offers you a student credit card with an extraordinarily low APR. It is most likely an introductory APR, which means that it will typically only last for a few months. After that, you can be stuck with a credit card with a much higher APR. Always check the permanent, non-introductory, APR before choosing a student credit card.

A so called Grace Period is offered by many credit card companies and knowing the grace period is very important if you wish to end up paying as little interest as possible on your student credit card. The grace period is the time between the day a purchase is made and the day the credit card company begin to charge you interest for that purchase. If you are planning on using your student credit card primarily as a way of building a good credit history and credit record while in school, and do not really need it to level your economy between different months, you should make sure that the credit card company offers a grace period. This way, you can use the credit card without having to pay any interest. As long as you pay your balance in full within the grace period, you will not be charged any interest. If your student credit card has no grace period, you will be charged interest from the day you make the purchase and can’t avoid fees by paying your balance once a month.

Transaction fees are also important to know about when you choose your student credit card. Some credit card companies will charge you a certain fee each time you use your student credit card for a cash advance, a so called transaction fee. Other types of transaction fees are those imposed on you when you fail to make a payment on time or when you exceed you credit limit. There are also several credit card companies that charge you a flat transaction fee each month, regardless of whether you actually use your student credit card or not. You can not avoid this type of transaction fee by refraining from cash advances, paying your bills on time and never exceeding you credit limit. Transaction fees are typically low, but can often amount to large sums in the long run depending on how you use your student credit card.

On the other hand, if you are offered a student credit card with a high transaction fee for cash advances but a very low APR and otherwise great conditions, it might be a good idea to accept it if you are certain that you will be able to refrain from making any cash advances. You always have to look at yourself and you individual financial situation when determining which student credit card that is best for you and your needs.

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