College Students: Credit Smarts 101

Now that you are a college student, you’ve most likely received many credit card offers.  Having and using a credit card can be a great tool to build a good credit history, understand; however that falling into the credit card trap is a good way to ruin your credit for a very long time.

The Credit Card Act  helps to curtail credit card use by college students;  it bans credit card approvals for anyone under 21 years old unless they have an adult co-signer or can prove they have sufficient income to pay the bills.  The average undergrad carries $3,200 in credit card debt.  The average graduate student carries $7,800 in credit card debt.

Credit card debt is not the only debt carried by many college students.  Nine per cent of college students also have car loans.  College students justify their debt by stating they will be able to pay off their debts after they graduate from college and begin working full time.  What college students fail to understand is credit card debt and car loans do not add monetary value such as increasing their net worth or increasing their earning power.

It’s no secret that paying off credit card debt can be difficult. The more you owe, the harder it is to get out of debt. And with credit card debt, paying your way out can be very expensive. A mistake you make when you are 18 will stay on your credit report until you are 25.

As a college student who has need for a credit card, what can you do?  Here is our list of dos and don’ts:

1.  Use your credit card wisely.  Use your credit card sparingly and pay it off each month on time.  This builds a responsible credit history.

2. Do not exceed your credit limit.  Exceeding your credit limit carries huge penalties. This is how credit card companies make the majority of their money; they are hoping that you will exceed your credit limit, etc. Do not allow carelessness cost you money that you do not have or need for other expenses.

3.  Pay in full every month.  Do not carry a balance from month to month. If you persist in charging and only making minimum payments, you will be at your credit limit sooner than you think.  Paying your balance off each month is an ideal way to make your credit work for you.  If you think it is alright paying the minimum amount each month, get ready for a very expensive lesson.  Paying only the minimum will mean you are paying on those debt years after you leave college, even if you stop using the card. Example:  if you pay only the minimum payment due each month on a $1,000 balance with an 18% APR, it will take approximately seven years and an additional $1,731 in interest to pay back what you owe.  Is it worth it?

4. Do not use cash advances.  The interest rate on cash advances are simply too high.

5.  Monitor Your Credit Report.  The Fair Credit Reporting Act gives everyone the right to see their credit report from each of the three credit bureaus every 12 months. Go to and request your report from Experian, Equifax, and TransUnion. Do not wait until it is time to graduate to see where you stand credit wise.

6. Don’t Fall for Giveaways.  Credit card companies are known for setting up tables on campuses all over the country.  These companies are now banned on many college campuses, but some colleges still allow them.  These credit card companies will entice you with a free t-shirts and other junk to get you to fill out a credit card application.  Ask yourself if that t-shirt is worth the trouble.

7.  Annual Fees and APR.  Paying an annual fee for a credit card typically will garner more benefits. Whether or not it is worth it comes down to your purchasing decisions and spending habits.  And if you have a habit of paying late, your APR (average percentage rate) will increase.  Credit cards with rewards programs often have higher APRs.   Credit cards that are branded with popular logos carry very high interest rates.  Logo examples include college affiliated, MTV, Ja Rule, Russell Simmons, the list goes on.

8. Read the fine print. This is good advice for anyone, but more so for college students who tend to be inexperienced with financial products.   Read everything before signing on the dotted line. And do not be afraid to shop around, look for a credit card with low fees and a low interest rate.

9. Do not loan your credit card to a friend. Let them figure out how to pay for their spring break and marqueritas for themselves.  Tip:  the person who asks you to do that is not a friend.

10. Only apply for credit you need.  Too much credit too soon will get you in trouble.  Even if you don’t think you need to worry about your credit score today, those inquiries — where a potential lender checks your credit to decide if they want to issue you credit stays on your credit report for two years.  That could hurt your ability to get a car loan or rent an apartment after graduation.  Credit card companies want to make you think that a credit card is indispensable. Think twice before applying for a credit card that you do not need.

Barbara Peterson is owner of CBC Associates collection agency and founder of Peterson Sewing School. She is a Certified FDIC Money Smart Instructor as well as a Certified FDIC Train the Trainer Instructor. Barbara also has over 25 years credit and collection experience.