Iris Taylor
Aug. 30–Parents, talk to your college-bound youngsters about the correct use of a credit card on campus this semester — and about the dangers of racking up debt.
Think about these sobering facts from a 2009 study by student lender Sallie Mae: Undergraduates are carrying record high credit-card balances. The average balance has grown to $3,173, the highest in the study’s history.
Also, 84 percent of undergrads have at least one credit card. Half of all college students have four or more cards.
The Center for Economic and Entrepreneurial Literacy found in its survey that an overwhelming number of college students are already credit dependent.
Yet they do not understand the basics of borrowing or interest rates. The literacy organization said students admit to making poor decisions with their personal finances and they are concerned about their financial future.
Do I have your attention, yet?
If so, talk with your college-age son or daughter about the following tips from Bill Hardekopf, CEO of LowCards.com, based in Alabama, and Glenn Birch with Virginia Credit Union:
–Show your own credit-card statements to explain interest rates, grace periods and minimum payments.
–Explain the high rates of cash advances and advise them to avoid that type of loan.
–Show examples of how much interest they will pay by making minimum payments. Use an online credit-card loan calculator.
–Tell them when best to use a credit card. Charging textbooks and for emergencies are good reasons. Buying clothing, pizzas and entertainment are not.
–Advise them to keep their credit card with them at all times. That’s the first step in avoiding credit-card theft. They should not let anyone use their card, or co-sign for someone to get a card.
–Explain the fees and penalties.
Before signing up for a card on campus, they should know that:
–How they manage their credit affects their credit score. A credit score is a three-digit “grade” that lets creditors know how likely consumers are to repay their debt.
The higher the score, the less of a risk they are perceived to be. Ones with the highest credit score get offered the best rates and enjoy advantages that people with lower scores don’t.
People might be offered a lower interest rate on a car loan, for example. A poor credit score can block a person’s ability to rent an apartment or get a job.
The best credit score boosters: Pay more than the minimum each month and pay on time, every time.
–A debit card and a credit card are not the same. A debit card accesses the student’s bank account and does not build a credit history. Students should watch their spending to avoid overdraft fees.
A credit card uses a lender’s money. The balance can grow very quickly if the student does not pay it off each month.
Hardekopf warned that if you don’t teach college teens how to correctly use a credit card, they will be forced to learn from their own mistakes. Make it clear to them that credit cards are loans and should be repaid in full each month, he said.
