Credit Card or No: Questions to Ask Before Signing Up

By L. Roberts on July 10, 2019

When you’re a college student (or a recent grad), you’re struggling financially. It’s no secret. You’re drowning in student loan debt, working fifteen hours per week to pay for your groceries, and you’re pulling all-nighters to make sure you keep up with your studies. So when you get a flyer in the mail for a credit card, it’s tempting to sign up thirty seconds later and feel like you’re rich. But do you really know what you’re signing up for? 

If you haven’t taken a financial literacy course (which most students haven’t), then it’s up to your parents to have taught you about credit cards. It’s typical for students to think credit cards are a way to access free money. But this isn’t exactly true. Credit card companies will lure you in with sayings like “You’ve been approved for a $5000 credit limit,” which will make you think you have access to $5000 today. However, they’re hoping you’ll go out and charge $5000 worth of stuff and then you’ll pay another 25% in interest as payment to them for letting you borrow that money when you needed it. So before you sign up for a credit card (because you might be thinking it’s a sweet deal), here are some questions you definitely need to ask:

via Pexels.com

1. Do you need a credit card?

If you’ve gotten yourself into a sticky cash flow situation, you might be thinking you truly need a credit card. But to answer this question, think about your normal spending habits. You should be in a financial situation where you can live and eat without having to stress about money. If you keep coming up short for rent at the end of the month, evaluate why that might be happening — are you spending too much money on entertainment or things you don’t need?

You should not view signing up for a credit card as a way to fix your cash flow problems. All a credit card is going to do is increase your debt to income ratio, as you’ll be spending money you don’t really have because you’re feeling impulsive. If you spend money left and right on unnecessary items and you can’t afford to pay your rent at the end of the month, I would suggest against signing up for a credit card. You’re only going to get yourself into deeper trouble.

Instead, evaluate how much money you make and the expenses you’re locked into because of your lifestyle. Signing up for a credit card is not the way to increase your financial health if you can barely manage income versus expenses without one.

2. Will I be approved?

Every time you get qualified for a credit card, a credit inquiry hits your credit report. If you have really bad credit, applying for another credit card isn’t going to help you unless you’re absolutely sure you can get approved. Before you even go through the trouble, make sure you’re going to be approved for a credit card before sending in an application.

3. How does this specific credit card compare to other choices out there?

There are literally hundreds of types of credit cards. You’ll qualify for specific ones based on your financial situation, but more than likely you’re receiving more than just one type of credit card application in the mail. Before you decide on the one you want, make sure you’ve done your research on all the ones that are offered. You might find a better deal somewhere else.

4. What’s the interest rate after the introductory rate expires? 

Credit card companies love to tell you the interest rate is only 15% for the first six months. They’re hoping you’ll forget when it expires. And then they’ll jack your interest rate up to 25-27% and hope that you don’t notice until it’s too late. By that point, you’ve charged so much on the card, it’s going to take everything you’ve got to get it paid off within a few months. So the decision you made to improve your financial health will actually end up destroying you six months later.

Before you sign up for a credit card, make sure you’ve looked into what kind of interest rate they’re going to start charging you after that sweet introductory period is over.

via Pexels.com

5. How does this credit card company handle fraudulent charges?

Losing your wallet is a thing — someone taking your credit card number is a thing. To lessen your anxiety about fraudulent charges, investigate how that credit card company handles charges you report as fraudulent. Sometimes companies will only cover you up to a certain amount. This is definitely something you want to know in advance.

6. Are there cash rewards?

Many credit card companies will offer cash back rewards — for every $1 you spend, they’ll give you a few cents back in rewards. This is how some people take all-expenses-paid vacations every year. If you’re in the position to charge a lot of money on a card and pay it off without accruing interest, you should definitely take advantage of this!

7. What kind of fees are tied to this card?

The only way you’re going to avoid credit card fees is if you pay off the balance of your card on time and in full every single month. That means that no, you really can’t go out and charge $5000 without having that money sitting in the bank to pay it off when the bill is due.

8. Is there any way to get a lower interest rate?

It never hurts to give the credit card company a call and have a conversation with a customer service representative. Tell them you’re wanting to open a credit card but you’re considering all of your options. Chances are, they’ll be able to approve something a bit lower and give you a better deal (if you have good credit!).

Before you sign up for a credit card, make sure you know the whole story. You don’t want to get caught in a situation where you owe a credit card more money than you really have. This is how people end up declaring bankruptcy– you get in so deep you can’t get out!

In her spare time, she enjoys spending time with her pup at the dog park and binge watching Netflix with endless cups of Hot Cocoa.

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