This September three of my nieces and nephews are heading off to college. My main piece of advice is to respect the plastic. For years I have been sickened by the campaigns on campus to sign kids up for credit cards. It is amazing what an 18 year old will give away for a free t-shirt. In this case, they are giving away –for free– their private information about social security number, college they are attending, cell phone number and more. In the worst cases, they are bartering their future wealth for a lousy t-shirt. Credit cards and convenient, useful and offer a level of protection for users. But if you buy things you can’t afford, they are as bad as an illegal drug. I know, you have heard it all before. You are different. You will be responsible. You won’t put a pizza on credit– or just make minimum payments. I hope so. Just be mindful of the temptation. Pay off your bill every month and set electronic reminders well in advance of the day payments are due.
A recent study by Sallie Mae, a leading provider of student loans, shows that students are using their credit cards more and more frequently, and racking up more debt than in years past. According to the study, the average undergraduate carried $3,173 in credit card debt in 2008. College seniors graduated with an average of $4,138 in credit card debt, up 44 percent from 2004.
Eighty-four percent of all incoming freshman will have a credit card when they arrive on campus and most undergraduate students will have four or more cards by the time they graduate, according to Sallie Mae.
“A person’s credit history begins with a first credit card,” said Sally Greenberg, executive director of the National Consumers League. “Most young people are surprised to learn that their credit history will affect them in a myriad of ways including the ability to rent an apartment, finance the purchase of a car, insurance, even when applying for a job.”
Parents and students need to work together to develop a financial plan for college. Specific educational expenses including tuition, room and board, books and fees can be viewed as “good debt” and can be covered through student loans, grants and the like. Day-to-day college expenses, including personal needs, transportation costs, telephone and other incidentals, are the types of expenses that students should not charge on credit cards.
If you get a card, make sure you shop around to get good terms, including:
An annual percentage rate (APR) at or below 15 percent
Offer a grace period of at least 25 days
Feature no annual fee
Student To Do List:
Plan and stick to a budget. Living within a budget is an important skill to master.
Pay bills on time. Students who pay bills on time will start to build a solid credit history. Late payments can also be expensive since they include stiff penalties and may result in an increase in the annual percentage rate (APR).
Use credit responsibly. Remember, credit is a loan—one that will need to be re-paid with interest.
Keep in touch with creditors. If students change residences and forget to tell their creditors, a series of lost bills can result in a black mark on a credit report. Such black marks stay on credit reports for seven years and significantly lower credit scores. Most students on campuses today have computers, which means they can take advantage of electronic billing and payment in order to avoid lost bills.
What can you do to improve your credit score if it has been damaged?
Do not pay someone to “fix” your credit history. Some credit repair firms promise, for a fee, to get accurate information taken out of your credit report. Accurate information cannot be deleted from your credit report. Some credit repair firms promise to fix your credit report by challenging information it contains, but they charge you a fee to do so. This is something you can do for yourself without paying the fee.
Create a plan to improve your credit over time. Pay your bills on time. Pay at least the minimum balance due, on time, every month. If you cannot make a payment, talk to your creditor. Work to reduce the amount you owe, especially on revolving debt like credit cards.
Do not max-out your credit limit. As a general rule, keep limits on credit cards below 50 percent to avoid the risk of hurting your FICO® score.
Limit the number of new credit accounts you apply for. New applications for credit in a short time will generally lower your credit-based insurance score.
In addition to the number of cards, the limits and the amount you use them, it is also important to consider the APRs of the cards you are using. APRs are not currently reported by credit card companies to the credit bureaus, and therefore they cannot be explicitly considered when computing your FICO score. However, you should know the APR of all your cards so you can add debt to a low APR card and pay it off from a high APR card. Paying off cards with higher APRs devotes less money towards interest, and leaves more money available to pay down your balances.
Keep at it. Your credit history will improve over time if you make changes now. If you manage your credit obligations effectively, your credit-based insurance score will improve as well.
Consider credit counseling. If you find yourself in a financial bind, consider credit and money counseling. Information is available from the National Foundation for Credit Counseling or the American Center for Credit Education. Students should also consider taking advantage of the financial literacy programs that are offered by many colleges and universities. Information on how to improve your credit score used by lenders is available at www.myfico.com.
You have the right to dispute any information in your credit report. By law, the credit reporting agency must provide you with a free copy of your credit report and must correct inaccurate or incomplete information at no charge to you. The three national credit reporting agencies are:
- Equifax ~ http://www.equifax.com/ ~ 1-800-685-1111
- Experian ~ www.experian.com ~ 1-888-397-3742
- TransUnion ~ www.transunion.com ~ 1-800-888-4213
One Response to “College and Credit Cards”
Dori Connolly Says:
September 29th, 2009 at 11:19 am
Mary This is an excellent article, only wish it could be inserted in the college packets of all the kids heading off to school.
Great breakdown of info.