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Back to school: 5 tips if you're packing a credit card for college

What's the best deal on college credit cards?
Credit: CherriesJD, Getty Images/iStockphoto
College students are being offered a variety of credit cards lately. Some may have 0% introductory offers but soon zoom up to 25%.

Back in 2009, college students seemed to have a love affair going on with their credit cards. About 84 percent of college undergraduates had at least one credit card, according to a study then from Sallie Mae. Seniors were graduating with an average credit-card debt of more than $4,100 in 2009, up from about $2,900 in 2004.

By 2016, only 56 percent of college students were carrying credit cards, according to another Sallie Mae report called "Majoring in Money." Credit was tougher to get after the financial fallout, and more restrictions were put in place in 2010 when it came to issuing credit cards to consumers younger than 21. 

Lately, college students are seeing offers pop up in the mail from cards such as Discover It Student Cash Back, or credit-card offerings from their own banks or credit unions. Credit is out there, possibly with a parent as a co-signer.  

"Banks are sending card offers to their existing clients, students for example, because it allows them to bypass any CARD Act restrictions that limit marketing to consumers who are under 21," said John Ulzheimer, a credit expert who formerly worked for credit-scoring company FICO.

Here are five tips when shopping for a credit card to take to college: 

Look for the best credit cards for college students

Some credit cards are designed for people with high incomes and excellent credit histories – not college students, said Bill Hardekopf, CEO of LowCards.com

So don't apply for just any card that has great rewards. College students are likely to be rejected for those high-flying rewards cards. Look for cards that target students

If you have a college checking or savings account, try applying for a credit card from that specific bank or credit union, Hardekopf said. 

"Having an existing, healthy relationship with the bank – especially if you
have money in a savings account with them – can help improve the chances of
being approved for a credit card," he said.

Some cards are marketed for college students, including the Journey Student Rewards from Capital One, the Discover it Student Chrome and Bank of America Cash Rewards credit card for Students, according to WalletHub.com.

More: Students aren't the only ones crushed by school debt

More: How to get a credit card when you've never had one

More: Retiring with debt? More Americans are. Here are some strategies

Know the real cost of borrowing

Credit card rates might come with a 0 percent introductory offer. But rates can really skyrocket after that intro period ends in six months or so. 

Often, variable rates can range from around 15 to 25 percent, depending on your credit, for some student credit cards.

Shop for a low rate. Look at your local credit union. The University of Michigan Credit Union, for example, has a Visa Platinum OptimUM with an 8.99 percent rate. 

"Obtaining a credit card in college can be a great way for a young person to establish a good credit history, provided that all payments are made on time and that balances are kept low," said Mark Munzenberger, financial education specialist, University of Michigan Credit Union.

At the same time, though, college students should establish or maintain a savings account for unexpected expenses instead of using a credit card to take on debt, Munzenberger said. 

A huge danger of using a credit card when you're in college is that you can get tricked into thinking you're managing your money if you're making the minimum payment. 

Sure, it's important to make the minimum payment on time each month. But if you're making only minimum payments – and not a dollar more – you're going to dig yourself deep into debt. 

Take this example: Say you owe $1,000 and have a total monthly payment of $40. If you continue to make only the minimum payments, it will take you five years and 11 months to pay it off. You'd pay about $510 in interest alone. See the Credit Card Minimum Monthly Payment calculator at Bankrate.com. Look at your credit-card statement too, which spells out how long it will take to pay off a bill if you only pay the minimum each month. 

Very few college students – just 8 percent – pay only the minimum amount due each month, according to the 2016 Sallie Mae survey. About a quarter of students make partial payments that exceed the minimum amount due. And nearly two-thirds pay their credit-card balance in full each month. 

It's far better to pay off the balance on your credit card in full each month on time, said Lauren Simon, financial wellness expert for GreenPath Financial Wellness

"If you do this, it will build a great credit history and avoid interest charges from revolving credit-card balances," Simon said. 

And remember: Retail credit cards carry higher interest rates than many cards, so they could even cost you more money in the long run if you don't pay the bill in full each month, she said. 

Keep credit-card balances low

Don't get into the habit of charging $250 or $300 on a card that has a $500 limit. 

Ideally, you'd want to charge less than 10 percent of the limit, or $50 on a card with a $500 limit, to get the best credit score, Ulzheimer said.

"Card issuers report your statement balance to the credit bureaus, which is why you want to keep your charges to no more than 10 percent of the reported limit," Ulzheimer said.

"Even if you pay in full each month, the balance on your statement is what’s used to calculate the balance to limit ratio," he said. 

If you can't stay below 10 percent, aim to hit or stay below 30 percent, as that can help with a  VantageScore credit score, he said. 

"It’s a sliding scale, and lower is always better than higher," Ulzheimer said. 

So if you have a $500 limit on your card, don't charge $450 worth of books. 

Work toward building up your credit score 

No, we're not suggesting that you call the number on the next road sign that reads  "Repair Bad Credit: $250." 

No one should hand over money for that one. Instead, take key steps toward a better score. 

You can obtain free credit reports at www.annualcreditreport.com. Or call 877-322-8228. Make sure there aren't any mistakes or signs that an ID thief opened up a credit card using your name. An inaccurate report can drive down your credit score. 

Ethan Dornhelm, vice president, Scores and Predictive Analytics at FICO, said college students who build a high credit score can look forward to one day receiving offers for other credit cards at better terms, as their FICO score continues to improve over time. 

A student with a credit card with a $500 limit also might see their current card issuer offer to raise that limit to $1,500 down the road. 

His top tip: Do not fall for the myth that you have to keep a balance on your credit card to get a good score. It's completely false. You are moving toward a good score by paying off your bill in full – and on time. 

Some options: Many consumers can obtain a free FICO score from their lenders via the FICO Score Open Access Program. The program, launched in 2013, offers consumers who have credit and loan accounts access to the actual FICO Scores used by their lenders to manage those accounts.

A product called myFICO.com offers a single credit report for $19.95 and can help you understand the top factors that affected your scores from your selected bureau, as well as help you figure out ways to improve that score. 

The FICO Score Planner is a new tool that is expected to be offered by Experian and lenders to help consumers know how to reach a target credit score goal by a target date. 

Most important tip: Put a lid on FOMO spending

The fear of missing out could drive you to pull out the plastic to pay for a spring break, drinks with friends or concert tickets for a band that you're not crazy about just for a chance to be with your friends.

"We spend money more freely when we are using plastic," said Jill M. Norvilitis, a clinical psychologist who has done research on student debt. 

Having a credit card can make it way easier to make impulse purchases online, too. 

Norvilitis, a professor at SUNY Buffalo State, said college students need to be aware of how they view the way other people handle money.

It's easy, she said, to see other students buying the newest phone or going on weekend trips and then try to live that lifestyle whether they can afford it or not. 

But students – like the rest of us – never know how other people pay for those things.

"Maybe they scrimp and save in some areas, maybe their families are buying those things for them, maybe they're in deep financial trouble themselves," Norvilitis said. 

Contact Susan Tompor: stompor@freepress.com or 313-222-8876. Follow Susan on Twitter @Tompor.