What college students should know about credit
Credit card companies court college students because these young adults may become customers for the next ten, twenty, or even thirty years. As well, because college students usually have no history of credit use, they tend to be charged higher interest rates and of course higher fees if they happen to fall behind on payments.
As customers, college students are easy to attract, many signing up for credit cards in exchange for free T-shirts, pizza, or a CD. To make their repayments, many use student aid or loans, work part-time, or even use funds from parents.
Credit cards can make college life easier, allowing students to buy books and make other essential purchases without first scraping up the cash. At the same time, credit cards can serve a greater purpose: they create a financial “reputation” for the cardholder, providing a basis for future essential borrowing, primarily car loans and mortgages.
As first credit cards are so important, students should handle them with care, only accepting cards with low credit limits. A card with low limits serve two purposes: the balance can be repaid relatively quickly, and the temptation to go on a spending binge is less. With a lower limit, cards are usually used for necessities and not frivolously.
New credit cardholders must work hard to uphold their “reputation” or credit score. A credit score is used to measure an individual’s credit worthiness, and consequently whether the person will be approved for other credit cards or loans in the future. To ensure a good credit score, students should be certain to make all payments before the due date, while moderating debt to prevent being overburdened by payments.
Students should know a credit score will influence many factors in the cardholder’s future, including the ability to qualify for a home loan or car loan in the future. Insurance premiums and many jobs, especially financial positions, are also influenced by an applicant’s credit score. If student credit cards are used correctly, the result will be a good credit score and therefore relatively low interest rates in the future, with less cash spent per month servicing debt.
Students should also be certain not to default on any stipulation of the credit card terms and conditions. Such errors can prove costly for years, resulting in higher interest rates, fees charged against the account, and a poor credit score, as well as a debt that requires a long time to repay.