College students and credit cardswhat you dont know can hurt you
CHICAGOBefore your college freshman even settles into his or her dorm room, chances are, credit card marketing teams will be on campus to sign up students for credit cards. In fact, company representatives will compete for your students business by handing out T-shirts, coffee mugs, CDs, and other enticements. According to the Illinois CPA Society, your best defense against this marketing blitz is to set some ground rules and educate your student about the importance of using credit wisely.
Not my child: If you think your child will resist the temptation of a credit card, think again. A student age 18 or older, with no income, can get a credit card without a parents signatureand more than a handful do. According to Business Week, in 2000, 95 percent of all college students had credit cards.
Used responsibly, credit cards can be helpful in an emergency and for establishing a credit history. But you and your child should be clear as to whether the card will be used for routine purchases or emergencies only and who will be responsible for paying the bill. Here are some tips that you should share with your soon-to-be college freshman.
Be aware of teaser rates. Credit card companies sometimes offer low introductory rates to attract new customers. These rates typically last for only a few months and then jump as high as 20%. Encourage your son or daughter to carefully compare offers from several different issuers before selecting a card.
Stick with one credit card. There is no reason your college student needs more than one card. Its easier to manage paying one bill at the end of the month, and using one credit card to pay off another is a dangerous practice that should be avoided.
Pay in full every month. Its a good idea for your student to get in the habit of paying the balance in full each month. Try to impress upon your child the merits of not charging more than he or she can pay off at the end of the month.
Pay on time. Be sure that your student knows to send the credit card payment several days in advance of the due date to allow for mailing time. Late penalties are costly, and some companies will increase the interest rate after one or two payments are overdue.
Avoid cash advances. Students are often unaware that the interest rate on cash advances can be much higher than the rates charged on purchases.
Protect your credit history. Be sure your child realizes that as soon as he or she starts using a card, the paymentswhether paid on time, late or not at allbecome part of his or her credit history. A poor credit history can affect your sons or daughters ability to rent an apartment, get a job, or buy a car or house. Whats morethe mark stays on a cardholders credit record even if the bill is paid later.
Dont exceed the credit limit. This helps your child avoid penalties and ensures that he or she will have credit available in the event of a true emergency. Be sure that your son or daughter realizes that a $2,000 credit limit doesnt mean he or she can afford to carry a $2,000 balance.
Review statements carefully. Stress the importance of immediately informing the credit card company of any discrepancies or errors on the monthly statement.
Report a lost or stolen card immediately. Encourage your son or daughter to keep a copy of his or her credit card account number and the financial institutions name and customer service telephone number in a convenient place. It is important to call the credit card company immediately if the card is lost or stolen.
Protect personal information. Your college student should never give out his or her credit card number unless making a telephone, mail order, or online purchase. Tell your student not to let anyone else use his or her credit card and not to charge purchases for other people.
Learning how to use credit wisely is as important a lesson as any your child will learn in college. CPAs say that by addressing the matter before your child leaves for school, you may be able to help your child avoid serious credit problems in the future.
This information was brought to you by the Illinois CPA Society, a state professional association representing 23,000 accounting, financial and business professionals throughout Illinois and worldwide. Visit the Societys website at www.icpas.org or call (312) 993-0393 or (800) 993-0393.