world scholar

“Cash or credit?” the cashier asks you.

“Oh? Credit I guess,” you reply innocently and hand over your new piece of powerful plastic.

It’s that easy. And that’s why 75% of Americans have credit cards and millions upon millions of them are in debt. Yet, for all the problems they can cause, credit cards have become a necessary evil for survival in America. If you want to place a telephone or Internet order, rent a car or pay for airline tickets, it’s likely you’ll need a major credit card. And during emergencies, it can get you cash fast (albeit at a dangerous interest rate).

Cards are convenient, but more importantly — at least to many banks — they help you establish a credit history (a record of how you pay your bills that determines how much credit you can get toward big purchases like a car or house). But they are also risky. If you don’t want to end up like the average American college student — $2,200 in debt according student-loan company Nellie Mae — you’ll have to be smart, calculating and discipline. You’ll also have to think about your long-term future.

“There can be a mentality of, ‘I’m only going to be in this country for a year, so how important is it that I pay my bill on time?’ This mentality can hurt a lot of people,” says founder and executive director of CreditCard.org, Larry Chiang. “What happens is you marry someone here or get a great job and you want to stay. Now you can’t qualify for a mortgage because you made two late payments on your credit card.”

Often international students are turned down when they apply for U.S. credit cards because the companies are worried you will leave the country without paying your bills (a practice that hurts financially responsible students who end up staying in the U.S. after graduation). But usually international students are turned down because they lack a U.S. credit history. If you don’t have a credit card from your home country (which won’t build your credit score here in the States), don’t despair, there are simple ways to establish credit in the States.

“Set up both a checking and savings account and deposit all the money your parents give you from home into an account with your own name on it, if you have a part-time job, try to get direct deposit, and then get a reputation with your bank as a good spender,” says Chiang. “In a few months you can apply for a low credit-line card with that bank.”

Before any bank hands you a charge card, the company will investigate just about every financial move you’ve ever made. Companies will dig into your history — how long you’ve been in the States, how long you plan to stay, where you work, how much you make and how you spend your money — so make sure you don’t go bouncing checks across America during your winter break.

If you’re still having trouble getting a card, apply for a store card from a chain like the Gap, Sears or Best Buy. Then make some small purchases (between $50 and $100) and pay them off as soon as you get the bill. After six months of smart spending, it’s likely that your credit score will go up and credit card issuers will get the message. One of the best options if you just can’t get approved for a credit card is the debit or check card. Debit cards with a credit card logo (like Visa or Master Card) can be used in most stores, over the phone and on the Internet.

Once you’ve established a little credit and you’re ready to upgrade, shop around. Don’t be fooled by big promises that come along with all the credit card vendors set up around campus.

“Students make a mistake when they accept cards off the cuff just because there are companies offering free hats or T-shirts or whatever,” says Linda Sherry of Consumer Action, a non-profit organization that fights for consumer rights. “Definitely take the application away and read the application. Look at some of the terms such as what is the APR, what happens when you pay late and what kinds of fees are involved.”

A legally mandated disclosure box on the application will have all this information including the card’s APR

(annual percentage rate), annual fees (which can range from $25 to $100) and other fees. If you don’t understand all the fine print in the disclosure box, make sure to ask a lot of questions. How is the balance calculated? Are there hidden fees? If you don’t understand the answers or aren’t satisfied with them, don’t get the card.

Once you have your card remember this tip: Don’t use it! OK, use it, but use it only when you know you can pay it off. The first rule of credit card ownership is: pay off your balance in full at the end of each and every month. Credit cards make a lot of money off snowballing interest when you don’t pay off your balance.

The second rule is: document your spending. Just like a checking account, you need to record what you spend so you aren’t shocked at the end of the month. Don’t think, ‘Oh, I don’t need to track my spending because my American roommate doesn’t.’ Remember that’s how your roommate got $3,000 in debt.

“The classic example we like give is the $50 pizza,” says Sherry. “You pay for pizza that costs $10 and then you pay the bill one day late so you get a $39 dollar late fee. Suddenly you’ve got a $50 pizza.”