Tell College Students NOW How to Use Credit Cards Properly

NEW YORK (9/19/07)--You can't prevent college students from getting credit cards, so the most important message for students at the beginning of the semester is to use those cards wisely. The next most important message: Not having any credit--or having poor credit--has serious long-term consequences (CBS News Sept. 12).

Like it or not, college students get applications in the mail, in bookstore bags and at registration tables. According to Nellie Mae Corporation, 46% of students reported that they obtained their first card during their freshman year. By the time they graduate, 91% of students have at least one card, with an average credit card balance of $2,850.

Telling a college student to avoid credit cards altogether not only will fall on deaf ears, it's not in the student's best interest.

Here's why. If a student uses a credit card wisely before graduation--that is, makes relatively small purchases and pays those charges back on time--chances are good the student will have good credit when entering the real world. Without good credit, the student may get turned down for a job, may not get a loan or insurance, and may not get approved for an apartment or mortgage.

Use these credit tips for college students:

• Shop around. The cards offered on campus may not be the best deal in town. Compare features and look for a card with no annual fee, a reasonable interest rate below 18%, a grace period (the time in which you have to pay the bill before you incur interest), and online account management. Check out cards issued by the local credit union, or go to Bankrate.com, lowcards.com, and creditcards.com for lists of cards available to students.
• Avoid the minimum payment trap. This is the absolute minimum amount you can pay without incurring a late payment fee and to keep your account current. If you can't pay in full, try to pay two to three times the required minimum payment--you'll pay off the balance sooner and save money.
• Steer clear of cash advances. If you use the credit card for emergency money, you'll pay a cash advance fee that's typically 4% of the cash advance amount. That's not all--there's a higher interest rate for cash advances, so you're "hit" twice.
• Don't use credit cards for tuition. Interest rates typically are higher on credit cards than for other education loan options. If you need to borrow money for tuition, use education loans with lower rates, built-in deferment of payments, and consolidation options after graduation.

For more information, read "Ant and Grasshopper Graduate From College" in Home & Family Finance Resource Center.

courtesy of cuna.org