The banking system in the USA can be quite different and difficult to understand for international students in the USA. As I mentioned in the previous blogs of this series, banking is a broad and complex topic. Therefore, I split my overview into three blogs. In the first one I focused on the different types of accounts and the necessary basics to understand the system. In the second one, I focused on the credit system (cards and score). In this blog, I focus on more advanced knowledge and things to pay attention to when opening and handling your credit cards. Stay tuned for my fourth and final one, where I detail tips and tricks to make the most out of your cards, accounts, and money.
Before we jump into the topic of this blog, I want to clarify some important information:
- To understand a lot of the topics we will be discussing, it’s important to read the basics discussed in the first and second part of this series of blogs.
- This is the most subjective of the three and is based fully on my experience and the research I’ve done.
- I’m not a financial expert or affiliated to any bank or credit union. All of this info was obtained through experience (as an international student myself, currently a 4th year) and through my own research.
- All this info has been updated as of October 2024; information can change any time so please confirm that all facts are still applicable at the time you read this blog.
- Finally, all economic decisions, investments, etc. are ultimately your responsibility and are context-dependent. This is not official financial advice. Please use my case as an example and then apply this general advice to your unique situation (nationality, tax information, visa status, etc.).
As it's been said in the disclaimer, it is your responsibility to take care of your financial decisions as well as how you apply the following tips or advice. At this point, you have a grasp about how to manage your basic economy (covering your necessities and payments first, not spending more than you earn, etc.), the basics of credit score and credit cards. Therefore, let's go directly to the tips and strategies.
Credit card musts
No matter what the credit card, always pay your full balance (without counting items split in monthly payment promotions) instead of just paying the minimum. Coming back to economic basics, if you only buy what you can afford and pay immediately then you should have no problems carrying a $0 credit card balance. No balance = no debt = no interest! Also, by doing so you maintain a good credit score.
Never get cash from a credit card. No matter the card or bank, fees for this action are quite high plus the interest rate tends to be higher than normal. In most places you'll be able to pay with a card or a digital wallet but be aware of places where they only accept cash and be prepared.
Every time you apply for a credit card a hard credit check is performed. This will affect your credit history. Having too many of these checks in a short span of time (less than six months) will lower your score drastically and can also be a reason for the denial of a credit. Get a card, build your credit history with it, then get the next one and so on.
Referral Codes
A referral code is a link or code provided by a company or service that allows an existing customer to refer new customers to the business. When a new customer signs up using the referral code, both the referrer (the person sharing the code) and the new customer can often receive benefits, such as discounts, cashback, reward points, or other incentives.
Referral codes are not exclusive to just credit cards, you can get a referral for when applying for an apartment complex, buying a phone plan and many others. It is basically free real estate. You and the person who referred you are getting money, a bonus or special rewards for opening the account or acquiring the service that you were going to get anyways. Therefore, always ask around with your group of friends, coworkers, etc. if anyone has a referral code for the specific card or service you're looking for.
Sign-up bonuses, cash back and perks
When selecting a credit card, annual fees and APR are crucial. However, the perks are the main reason for getting a specific card. Sign-up bonus refers to the rewards or offers you get to incentivize you to open an account (not including a referral reward). This is normally a combination of rewards like extra cashback in a specific category, reduced APR for a limited time, free memberships to services (Uber, Netflix, etc.) and many more. You can only get this offer once for each individual card so maximizing and selecting the timing to get each card is crucial. As mentioned above, applying for cards too often will negatively impact your credit score. Therefore, even if the signing bonuses can be tempting, I suggest signing up for one card at a time.
Cashback is a reward program in which you earn back a percentage of the money you spend on purchases you pay with your credit card. The way it works is that whenever you buy an item with the card, you earn a certain percentage (e.g., 1%, 2%, 5%) of the amount spent. For example, if a card offers 2% cashback and you spend $100, you’ll earn $2 in cashback. In most cases, the cashback earned will appear in your account as points which can be exchanged directly into money (conversion rates will vary across cards) or into credit for a specific store or service with a beneficial rate (e.g. Cashback 1 point=1.5 points at Lowes). This last point is particularly important when you have a travel credit card, in which your points/miles can be exchanged at higher rates to reserve hotels and flights.
The last important fact about cash back and cards is that the cashback categories/percentages are not always static. Many cards change the cashback categories on a bi- or tri-monthly basis, meaning that maybe for January to March you’ll earn 5% and 1% in all other purchases and then from April to June now you’ll earn 5% in groceries and 1% in everything else (including restaurants). Therefore, it is important to pay attention to which purchases give you the most cashback to use your card for those payments. More regarding this topic will be discussed at length in the next blog.
Some other perks that come with having a credit card can include, like mentioned previously, premium memberships for services (Uber eats, Amazon prime, etc.) which are an added bonus so it's important to make use of as many perks as possible to make the most out of your cards.
Interest free monthly payment purchases
Some cards have a built-in perk which allows you to transfer purchases that cost over a certain amount (normally purchase higher than $50 or $100) to monthly payments without paying any interest. In this case, the total cost of the purchase is divided by the number of months (normally between 6 and 12) that the plan lasts, and you’ll have to pay that amount each of those months to complete the payment. No interest will be charged and in every monthly statement your monthly total will be the amount you spent that month plus the amount stated in the payment plan.
It’s important to note that you can advance payments, meaning if you pay more than what is stated in the payment plan you’ll reduce the duration of the plan (number of payments, not how much you have to pay each month). Despite this being an amazing way to get products or services (like flights and hotel stays) which would normally be out of your budget, it is important to make sure that the monthly payments are within your budget for as long as the plan lasts. These monthly payments can stack-up and become a huge burden if not used responsibly.
As a summary, Do’s:
- Always get a referral code when opening an account (or any service that allows it)
- Pay the full amount of your credit statement
- Use all the perks that come with your card
- Keep check of the cashback opportunities and cycles
- Split necessary big purchases into monthly payments (responsibly)
Don’ts:
- Buy anything (unnecessary) above your budget
- Take cash from your credit cards
- Make the minimum payment of your credit statement and accumulate interest
- Stack payment plans to a point is no longer in your budget
- Open many accounts to fast or to often
I hope this blog has given you some insight and some guidelines about the basics and requirements for international students in terms of credit in the US. As I mentioned at the beginning of this blog, this will be a series of blogs where we will go deeper and discuss more advanced topics in the next parts of this series.
About the author:
Manuel Carmona Pichardo is from Pachuca Hidalgo, Mexico and is a current Ph.D. student in Chemistry. He got his B.S. in Chemistry at Universidad Autónoma del Estado de Hidalgo in 2016 and his MSc in Chemistry from Cologne University in Cologne Germany. Read more.
Further Reading:
Banking in the USA for international students Part 1: the basics
Banking in the USA for international students Part 2: Credit cards and score
Banking in the USA for international students Part 4: How to play the game