Credit card companies love college students... but credit card debt can hurt. Students need to learn the do's and don'ts of choosing and using credit cards.
Credit cards are an easy way to build up that all important credit history, which will come handy later to get things like car loans and mortgages. But according to a study by student loan company Nellie Mae, nearly one in four college students has at least $3,000 in credit card debt. Fortunately, for most people, a little common sense and a lot of self-control goes a long way towards good credit card management.
Choosing a Credit Card
- Learn the difference between a credit card (which loans a small amount of money and sends a bill to be paid off every month) and a debit card (which takes money from a bank account as soon as a purchase is made). A debit card will not help your credit score, but may be a good bet for students who would otherwise spend money they don’t have.
- Shop around for a good deal. Low interest rates are key, but students should also take advantage of free reward programs like cash back or points that can be redeemed for cool stuff.
- Think twice before getting a credit card that charges an annual fee. There are plenty of great credit cards out there for free. If you really, really want a credit card that charges (for instance, because of a frequent flyer mile program), see if you can get the annual fee waived for the first year. When the year is up, threaten to cancel the card. Credit companies will usually waive the fee again rather than have a student cancel.
- Read the fine print. That great interest rate the credit card company is offering may only last three or six months, or that huge amount of cash back might only be available for specific types of purchases.
- Don’t sign up for too many credit cards just because of cool incentives. Those free t-shirts and water bottles are just more advertising for the credit card companies. One card is enough; two is plenty. Having too many cards can hurt a college student’s credit report.
Using a Credit Card
- Treat your credit card like cash. In other words, students should never use a credit to get things they don’t have the money to pay off, unless it’s a dire emergency.
- Know your credit limit, and don’t go anywhere near it. Passing the credit limit can result in bank charges and increased interest rates, and hurt a student’s credit score as well.
- Keep track of all your charges so you know how much you’ve spent (and how much credit you have left). Money management software or even a spreadsheet can help.
- Don’t take cash advances (use the credit card like an ATM card) or use those blank checks that credit card companies send in the mail. Interest on cash advances starts accruing right away (unlike with purchases, which usually give a 25-30 day grace period before interest kicks in).
Paying a Credit Card
- Always pay on time. Most companies let users pay online, any time. But paying late means pate payment fees, higher interest charges, and a bad note on a student’s credit report.
- Always pay the full balance due every month. That way students can build good credit while avoiding any interest charges. Don’t just pay the minimum due -- it will just pay off interest charges and not the original balance. That’s one main way credit card debt gets out of control.
- Keep your receipts and check the credit card statement every month. Mistakes do happen, but they can be fixed.
The copyright of the article Credit Cards & College Students in Consumer Education is owned by Estela Kennen. Permission to republish Credit Cards & College Students in print or online must be granted by the author in writing.
