Are Credit Cards a Trap for College Students?

Are Credit Cards a Trap for College Students?
  • Opening Intro -

    You've heard the warning: credit cards for college students are a bad idea. Well, there is some truth to that statement. Especially when credit is easily dispensed, overused, and not properly managed.

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If students are not careful, they may leave college with thousands of dollars of unsecured debt and quite possibly their credit score in tatters. Here’s what you need to know about securing a student credit card:

Restrictions Apply

Federal rules forbid credit card providers from issuing cards to anyone under age 21 unless the applicant can prove that they have the ability to repay the debt. That ability is typically based on a part-time job or other source of regular income.

One way that students can get around the restriction is to have a parent co-sign the application. In the event that the student defaults, the credit card provider would go after the parent to pay off the loan. That also means that a consigned credit card will not affect the student’s credit rating, for better or for worse.

It May Cost You

Some credit card issuers will provide credit under certain conditions. One, you may be charged an annual fee. Two, the interest rate charged may be higher than average. Three, your lending limit may be quite small, perhaps $500 or less.

Don’t settle for the first credit card offer you find — shop around. Other providers may waive the annual fee, charge you a lower interest rate, and provide a larger borrowing limit. Always strive to avoid fees wherever possible.

Your Credit Score Matters

Do you know your credit score? This three-digit number is very important and will determine if you are extended credit (provided that other conditions are met) and at what terms. The higher the score, the better for your credit.

You can obtain your credit score for a fee from MyFico.com. You may also want to obtain copies of your credit reports from AnnualCreditReport.com. Stay on top of your credit to avoid surprises. The three credit reporting bureaus are: Experian, TransUnion, and Equifax. If you find mistakes on your credit report, notify the respective bureau per its instructions. By law, the credit bureaus must fix reported mistakes and issue a new (amended) credit report to you for free.

Within Your Means

If you are approved for a credit card, there are several things you should do to avoid trouble:

  1. Get statements online for your review.
  2. Have payment due and payment made notifications sent to you via email or smartphone alert.
  3. Make payments online and as soon as statements are received.
  4. For cosigned accounts, ask your parents to keep tabs on your statements.
  5. Use credit only for items you need. Pay off balances every month.

Credit Considerations

Manage your credit wisely and you’ll build up good credit and find new credit easier to obtain once you graduate college and get a job. Run into trouble and bad credit can haunt you, even costing you an apartment or a job — just the kind of traps you must avoid.

See AlsoDebt Savvy: College Students and Credit Cards

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