credit cards

Why a credit card is useful for students

In college you didn't have to worry about this because quite frankly card issuers weren't worried about you not paying. They knew your parents would likely step in if you ran up oversized balances or fell behind on payments.

But once you graduate, you and your lack of credit history are on your own. "Welcome to the real world," says Steve Rhode, president of Myvesta.org, a financial crisis and treatment center.

The smaller card route

Another option is to try a department store, a gas company or some other smaller credit card. It will help you in your daily finances, and it will also help rebuild that credit. If you can handle a Macy's or a Texaco card, major card companies will be impressed.

Be aware, though, that these credit cards sometimes come with high interest rates and low credit limits. Plus, some issuers of department store cards do not report to the credit bureaus. This means any on-time payments you make with the card won't be noted on your credit report. Having an unreported-card account won't boost your credit one bit.

"The credit world knows as long as you can fog a mirror you can get a department store card, so it's not really evidence of any credit worthiness," Rhode says. "Getting a store card or a gas card is not a major accomplishment."

Plus, some issuers of department store cards do not report to the credit bureaus. This means any on-time payments you make with the card won't be noted on your credit report. Having an unreported card account won't boost your credit one bit.

"If they don't report, it doesn't do you any good," Rhode says.

The only all-purpose credit card deals you're likely to qualify for are reserved for people with no credit or damaged credit. Interest rates and fees are sky-high, and credit lines are low. Paying hundreds of dollars in fees for a credit line below $100 is not unusual. Yikes.

Building a credit profile

You'd be better off applying for a secured credit card instead. With secured cards, a cardholder makes a savings deposit in exchange for a credit line.

The interest rates and fees on secured cards tend to be lower than those charged on unsecured credit cards targeted toward people with poor or no credit.

Even so, secured cards are hardly credit bargains. Interest rates in the high teens or higher are typical, and so are annual fees. Because annual fees may vary dramatically from offer to offer, it's best to shop around. Bankrate.com lists secured card offers from banks around the country.

Be sure to check that a secured card issuer reports to the three major credit bureaus before applying for any card. Some of the smaller issuers may not, which is why it's a good idea to get a secured card from a major, reputable bank.

Avoid secured cards with processing or application fees. For more tips on landing a good secured credit card offer, check out Bankrate's " 10 questions to ask before getting a secured credit card."

Remember, you're using a secured card to build up a strong payment history, not to go into debt. So stick to smaller purchases that you can pay off each month.

Taking off the credit training wheels

After a year of on-time payments with a secured card, you may qualify for an unsecured credit card with a lower interest rate. Shop carefully.

You've worked way too hard to establish a good payment record. Don't sell yourself short by signing on for the first costly offer that comes your way. Be a smart shopper.

This credit card search engine from Bankrate.com will help you compare offers from issuers around the country.

Don't overlook offers from local banks and credit unions; the deal you're looking for may be from a lender just around the corner.

As for credit card-free undergraduates? Do yourself a favor and apply for a credit card before you graduate. It could save you a whole bunch of hassle later on.

Graduating with a couple of years of on-time credit card payments would be even better. These money management tips from Bankrate.com will show you how to build up your credit without draining your wallet.

And you won't need a lot of cards to build credit. One or two low-limit cards is more than enough.

"All they're looking for is, do you pay in a timely manner," Duguay says. "Pay on time every single month."

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