What College Kids Need to Know about Credit Cards
College students will receive lots of credit card offers. It’s a huge temptation. All they have to do is fill out an easy application and then start buying. They need to understand the right and the wrong way to use credit cards.
If they misuse them they could end up graduating college with not only student loan debt but also a large credit card debt. Then they can spend years paying it off before they can begin saving and investing in their future.
Keep this from happening by educating them about credit card basics.
Here are some key points to discuss with them before they head out to college:
- Expect to receive lots of credit card offers. If they have the student’s name or other information pre-printed on form or letter be sure to shred it. Don’t throw it in the garbage or recycling. It’s information they might be making available to a crook who could try to fraudulently get a card in their name.
- Just because they can doesn’t mean they should. Just because a bank will give them a certain credit limit doesn’t mean it’s a good idea to use it. The bank wants them to run up a big balance that they can’t pay. That’s how it makes money. Credit card interest rates for young people with no credit history can be 20% or more!
- Only use the credit card for purchases that they have the money to pay. Credit cards are not bad in themselves. It’s how you use them. They can be very useful for safety and convenience. However, if they can’t pay off the balance at the end of the month then they shouldn’t make the purchases – period. The only exception should be for real emergencies like their car breaking down.
- Credit cards are good for helping them build a credit history. This will help them down the road when they need to buy a car or want to buy a house. So credit cards should not to be avoided. But they need to be used wisely. Sometimes they’ll hear people suggest that they should maintain a balance on the card so that it shows that they can handle credit and this helps build up their credit score. I advise against this for college students. The risk of creating bad habits with their credit cards far out weighs any benefits from that kind of stuff at this point in their lives. Save that for later on after they graduate, have a job and have developed good self-discipline with their credit cards.
- Help them apply to a bank you trust for the one credit card they will use. When the first statement comes go over it with them. Show them how to read it and where to find the interest rate that they will pay on the balance if they do not pay it off.
- Keep their receipts. This is always the hardest part for most people. If they don’t have their receipt how are they going to know for sure that the charges on the statement are correct? Assuming that one does accurately remember each charge amount it is much easier to dispute errors if they have the receipts. They should get in a habit of always asking for a receipt. Bring it home and put them all in one place such as an envelope on their desk. That way they have them all in the same place for when they get their statement.
- Update their address and contact info with the bank. They want to make sure they receive the monthly statement timely. If it’s going home first via regular mail and then getting sent on to them at school that delay could cause their payment to be late. Depending on the bank, parents may be able to have a second copy sent to them. Of course, these days most banks will send statements electronically. If they are getting an email notification that the statement is ready they need to log in and get it right away.
- Review the statement right away when they receive it. Compare it to the receipts. Make sure they agree with all the charges on it. If there are any fraudulent charges they should immediately call the bank. The responsible, reputable banks have fraud departments that will help resolve it quickly. But only if it’s reported timely.
- Pay the bill on time! This is important. Paying it late will hurt their credit score and cost them late fees and interest. Often times the due date on the bill is pretty short. If they are mailing a check to the bank then be sure to mail it at least 5 days before the due date. Between the post office and the banks conveniently slow processing it can easily take this long for the payment to be credited to the account. If it’s not credited by the due date they will get charged interest and late fees. This is where the banks make their money. The best rule of thumb is to pay it as soon as they get the bill. There’s no reason to not pay it right away since they shouldn’t be making purchases they don’t have money for anyway. If they set it aside they’ll just risk forgetting about it and making a late payment. Paying electronically is usually quicker and safer since checks in the mail can be stolen or lost. It’s also a good way to have proof that the payment was made timely since it goes directly from bank to bank.
BONUS POINTS> Keep a register and track their account balance. There are lots of online tools for tracking their accounts and spending such as Mint.com. I hesitate to use these apps because I am less trusting of putting my bank account login and passwords in third-party apps and websites. With all the supposedly trustworthy companies getting hacked these days the fewer places that have important bank login info for you the better, in my opinion. There are many free online apps that will help to track their bank and credit card balances. I recommend just entering the transactions the old-fashioned way. It helps create good habits. The act of entering charges into a register each time after you make a purchase helps keeps your spending in perspective.
NOTE> Debit Cards. Many opt to use debit cards instead of credit cards so they won’t be enticed spend more than they have. I can’t argue with this logic. I like the motivation. The reason I tend not to like doing this, however, is because of the realities of bank fraud in the world today. There are protections in place if you are using the Visa and MasterCard systems. BUT I don’t like the fact that if your debit card number is stolen any fraudulent charges come directly out of your actual bank balance. You will be without that money in your account until the bank (hopefully) agrees that it’s fraud and (again hopefully) refunds the money to you. This can cause other legitimate payments you have made to potentially bounce due to lack of funds. Obviously, this can cause you other problems and at the very least embarrassment. With a credit card the fraudulent charges are on the credit card account and if you dispute them timely they are generally removed before you have to pay them. To me that’s better. Also, debit cards aren’t helping you build a credit history.