Are College Students Ready for Credit Cards? - Brief Article

USA Today (Society for the Advancement of Education), August, 2000

In a very short time, thousands of students will head off to their first year of college, where they will experience the many rituals of collegiate life: trying to figure out what classes to take and which parties to attend, adjusting to dorm life, meeting new friends, going to football games, and getting their first credit card. Consolidated Credit Counseling Services, Inc. (CCCS), points out that 80% of colleges and universities permit some form of on-campus credit card solicitation, and nearly 80% of full-time undergraduates have credit cards. (Students can enroll without a co-signer if they are over 18 years old.) Despite the fact that they have little income or credit history, such solicitation is not surprising. Roughly three in four students keep the first credit card they receive for 15 years or longer.

The downside to this solicitation is that the average outstanding balance is $2,226, and 10% of college students have rung up outstanding balances over $7,000. Some have been forced to drop out of school because of debt problems that were brought on by the misuse of credit cards.

Credit cards can have their place in a college student's life. They can be useful for emergencies and help the student learn about the proper use of credit and establish a credit history (if the card is in his or her name). To assist their offspring in the most appropriate use of credit cards during their school years--and later--here are some tips for parents:

Educate them about credit cards. According to CCCS, 44% of students understand the word "budget," 34% comprehend the concept of buying on credit, and a mere eight percent have a knowledge of compound interest. Like numerous adults, they don't grasp the often-expensive issues of grace periods, late payments, finance charges, and minimum payments. Students also need to learn about the importance of building and keeping a good credit history since it affects their chances of getting future loans and even their ability to find a job.

Keep just one card. Even if the credit limit for a newly issued card is $500, a student with a handful of cards can run up a lot of debt in a hurry. Credit limits tend to climb depending on age and credit history, so the student might be smart to ask for a low credit limit initially and keep it there.

Watch out for teaser rates. Select a card based on its full rate, not a teaser one. Some cards for college students offer rates around eight percent, but jump to 16-17% within a few months. Also look for cards with low or no annual fees as well as reasonable late-payment, grace period, and billing policies.

Practice, Consider having your child start out using your credit card so you can monitor the charges and discuss any inappropriate ones. Only after students show responsibility should they get their own card. Another way is to start them out with a debit card, which deducts charges from their checking account, or a secured card, which allows them only to charge up to what they have deposited in the card's account.

Don't co-sign their card. When it's time for students to get a card on their own, don't co-sign for it. As the primary borrower, they can run up charges without you being able to control their use of the card, yet you will be legally responsible to pay for the debt, late fees, etc. if they get in over their heads. In short, you could harm your own credit rating.

Keep it paid off or pay more than the minimum. This is good advice for any credit-card user, but especially for low-income students who can ill afford to get behind. If they keep their purchases small or utilize the card just for emergencies, they probably will be okay. Also be sure they understand the high cost of making only the minimum payment, which will run up the interest charges over time.