Students heading off to college, some for the first time, might have a serious discussion with their parents about drinking or drugs. As parents and children talk about the potential pitfalls on campus, they shouldn't forget about credit cards.
College is often the first time young adults get cards in their names. Card issuers that have saturated working adults with plastic also target students, knowing they tend to be loyal to their first card and, when in money trouble, find ways to pay bills other than defaulting, consumer groups say.
"They call home, just like E.T.," said Ed Mierzwinski, consumer program director with U.S. Public Research Group in Washington.
Plastic used responsibly can help students build a good credit history, which is what banks and mortgage companies will use for years when making lending decisions. Prospective landlords and employers also use credit history to determine whether someone is responsible.
"If they don't treat this card like it could explode, it might after they graduate," Mierzwinski said. "In college, it's a convenience. After college, it's more of a necessity. You can't rent a car and can't stay in a hotel" without a credit card.
It's not hard for students to get a credit card. Phone solicitations pour in. Card companies set up booths on campus, luring applicants with free T-shirts and other gifts. Student groups raise money by collecting a fee for every student who signs up for a card.
University of Maryland junior Shaniel Faure has eight credit cards, receiving her first during her freshman year after filling out an application outside the school's dining hall. (The university says it bans card vendors from soliciting students on campus and shuts down violators.)
Faure's parents pay the balance on three store cards. She is responsible for the other five, which carry a total balance of $2,350. The public relations major says she's not worried about the debt because she has a part-time job in the university's financial aid office, making $250 to $300 a week.
The 20-year-old says she pays on time and always more than the minimum required. "They get you with the minimums. The next month, you owe the same thing," she said.
Faure is not unique. According to a 1998 study by Nellie Mae, a student loan provider, 60 percent of undergrads had credit cards, and the average balance was $1,843. Nine percent carried balances of $3,000 to $7,000, and 5 percent owed more than $7,000.
For those heading off to college and into the world of credit for the first time, experts suggest:
Shop around. Cards hawked to students aren't the best deals around, and students who have established a credit history may be eligible for standard cards with more favorable rates and fees, said Greg McBride, a financial analyst with bankrate.com in North Palm Beach, Fla. The financial data and research company offers a survey of student cards on its Web site at www.bankrate.com.
Cards offered on campus might be the only option for students without a credit track record. After six months of paying bills on time, though, students might be able to shop elsewhere for a better deal, McBride said.
"Keep in mind once you establish good credit, you have more power with an existing credit card company" to negotiate a lower rate or elimination of an annual fee, McBride added.
Get only one card, which makes it easier to keep track of what you owe and to avoid the temptation of maxing out on two or more cards.
Pay the balance in full each month. If that's not possible, pay more than the bare minimum. Otherwise, you can end up paying for the pizza and new clothes you charged for years to come.
"Don't add anything to the card if you can't pay the balance off in full," added Steve Rhode, president of Myvesta.org, a debt management group in Rockville. "You'll never get out of this hole sending in $200 a month and adding $180 of new charges."
Use credit cards for emergencies or necessities, such as books.
Always pay on time. Typically, if consumers are late twice within six months, a card issuer will bump up the interest rate to as high as 30 percent, McBride said. "It can also be increased if you're late on another card or with any other credit," he said.
Be aware that your payment could be delivered on the due date to the card issuer but be deemed late if it arrives after the cutoff hour. Avoid this problem by mailing payments a week before the due date, Mierzwinski said.
If you're going to have trouble meeting a payment, call the credit card company before the due date and be forthcoming with your financial situation, McBride said. Card issuers might be lenient.
If students get in way over their heads, they might have to seek outside help. Consumer Credit Counseling Service and other debt counseling programs offer free budgeting and credit advice.
In more severe cases, the counseling services will negotiate a repayment plan with creditors. McBride warned that this becomes part of your credit record and "raises a warning flag that this consumer in their own perception got a little overextended or had some sort of difficulty meeting obligations."
If you can't handle credit cards, some experts advise using a debit card, which withdraws money directly from your checking account. Be aware, though, that debit cards don't hold the same fraud protections as credit cards, and you could be liable for unauthorized charges if you don't report a stolen debit card within certain time limits. Also, you must keep close tabs on your debit card purchases and the checks you write, to ensure that your account doesn't become overdrawn and you're not hit with fees.
This last tip is for parents who worry that their children can't handle plastic: College Parents of America, an association in Washington, introduced two options for its members this month, a credit card and a pre-paid card that allow parents to control access to funds and to monitor students' spending. As with all plastic offers, check out the terms and fees. The credit card charges no annual fee if used at least six times a year, and, after a low introductory rate, the rate jumps to prime (now at 9.5 percent) plus 7.9 percent after six months.
You can contact Eileen Ambrose at 410-332-6984 or by e-mail at email@example.com.