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College Students & Responsible Credit Card Use

Although not my primary audience, this post is for recent high school graduates who, in a mere matter of days, will be heading off to college to embark on the inagural days of their adult lives.

During orientation, there will probably be a local bank on hand to help you open a checking account. If you’re an out of town student, you’ll probably want the convenience of using the bank’s ATM machines on campus, so you’ll open one. Be aware, though, the agent may try and get you to sign up for a credit card. Since this is likely your first adult financial decision you’ll make on your own, keep the following in mind:

1. Don’t rush into signing anything. It’s highly likely that you might feel pressured to sign up for the “introductory rate” that AnyBank USA is offering for new students at your college. Remember, though, that the nice man/woman urging you to open this account is a salesperson. They’re playing on your insecurites, leaning on you extra hard by highlighting that this rate is only good for today. Don’t buy the hype. Trust me, there will always be another appealing introductory rate. And another one after that. And another one after that.

Before you do anything, walk away and think about the pros and cons to having a credit card. Make a list. Talk it over with your parents. And then decide.

2. Understand Your Limits If you do sign up for a credit card, you need to clearly understand that you have a credit limit and that you have very limited resources (read: money). As soon as you get your card, know what your credit limit is and aim to stay well below it. A good rule of thumb is to only use 30% of the allotted credit that you have on any given card. Your credit limit is not something that merely expands with use, magically increasing when you need more of it. In fact, if you go over your limit chances are you’ll be dinged with a $35 “over the limit” penalty and you’ll get a ding on your credit report, too. Use your card responsibly.

You also need to remember that, since you are a college student, your own financial resources are severly limited. You don’t want to head back to school your second year with the only goal of finding a job because you owe too much on your credit card. (Oh, and believe it or not, Mom and Dad’s finances have their own limits, too.)

3. Remember to Forward Your Mail I actually attended college before things like online bill pay and MySpace existed, so we had the responsibility of forwarding our mail. A friend of mine didn’t forward his mail freshman year and, one spring day during senior year, he saw a collections notice in his mailbox. (A collections notice is not good.) Turns out he owed less than $50 on a credit card that first year, but neglected to pay it. It took them almost three years to hunt him down, which really hurt his credit score. Moral of this story: remember to forward your mail. Or at least sign up to make sure you have online access to your credit card account. That way you can be sure of your balance at all times.

4. Credit cards won’t care if it’s summer. Keep paying your bills. Although your life may be divided in two when summer vacation hits and although you might temporarily say goodbye to your “college life,” remember to pay your bills. The credit card companies don’t care that it’s summer vacation. And by neglecting your bills for three months will surely get you a negative ding on your credit report.

5. Understand the importance of a good credit score now. Credit scores and credit reports are crucial tools for others to quickly judge you in your adult life. You’ll need good credit to get apartments, to get low interest rates on car loans and home mortgages. Increasingly, employers are even pulling credit reports as part of a prospective employee’s background check. You want to get on top of your credit now to maintain a high credit score. It will save you thousands of dollars in unecessary interest payments down the road.

You’ll learn many lessons over the course of the next four years, but make sure you educate yourself about using your credit card responsibly. One seemingly tiny mistake can follow you around for the next decade of your life.