College students: Prepare for credit card deluge
First in a five-part series about college life and money
By Lucy Lazarony • Bankrate.com

They're young, they're keen to assert their independence, and they are being offered credit cards wherever they turn.

It's become a college certainty. Even before this year's freshman class settles into their dorm rooms, the credit card offers will be rolling in.

Most will bring limited credit lines and relatively high interest rates. And they are easy to get. Very easy to get. There are few income requirements to worry about.

Use it well
Used well, credit cards can help a student establish a respectable credit history. Gerri Detweiler, an education Adviser for Debt Counselors of America, who penned a brochure for students and parents, puts it this way: "The best reference you'll find on a credit report is a major credit card paid on time, all the time."

But they can also can leave financial bruises that don't heal until long after the diploma has yellowed on the wall.

Experts say students too often learn about the high cost of credit cards the hard way: after they run up balances.

"Learning as you go along is expensive," said Steve Bucci, president of Consumer Credit Counseling Service of Rhode Island.

Watch those rates
Many student cards come with high rates. In the June, 2000 Bankrate.com survey of lenders that offer student credit cards, the average rate came out to 17.51 percent, about a half a percentage point higher than the average for all variable-rate credit cards.

Among the student-card issuers, those offered by credit unions tended to have the most consumer-favorable terms, led by the 12.5 percent fixed-rate Visa card offered by Navy Federal Credit Union. Six out of the seven credit unions surveyed offer student cards with APRs less than 15 percent, and all had lower late fees than their commercial counterparts.

Students seeking credit cards should view teaser rates -- those incredibly low introductory rates that last about six months -- with caution. What will the APR be after the introductory period?

Also be aware that one late payment and the rate, whether it's during an intro period or not, often will be jacked up to 20 percent or more, and there will be a hefty late fee to boot.

While cash advances may be tempting, check out those interest rates. They can be as high as 22 percent for cash draws. And watch the annual fees.

"All cards are not the same," said Dara Duguay, executive director of the Jumpstart Coalition for Personal Financial Literacy. "You need to shop around."

The choice is yours
And students will have plenty of credit cards to choose from. Credit card issuers want their business because students tend to be loyal to their first credit card: They keep on charging long after graduation.

Visa, MasterCard and American Express all have Web sites dedicated to college students and packed with financial tips and information, as well as online credit card applications.

"As long as you're a full-time student, you can get a card," Detweiler said. Why is it so easy? Because credit card issuers realize that parents can be counted on to bail out students who run up oversize balances or fall behind in payments.

"I've talked to parents who were totally shocked at the amount of the credit card bill," Duguay said. "I've heard everything from $500 to several thousands of dollars."

Play it straight
The best way to avoid having to explain that bill to mom and dad is to learn to get by with one or two low-limit credit cards. Keep those balances down. A credit limit of $1,000 is plenty for most students.

"We have a rule of thumb for kids who say they need a card for emergencies," Bucci said. "If you can eat it, drink it or wear it, then it's not an emergency."

"We also caution kids: If a lender gives you cards with $1,000 or $2,000 limits, that doesn't mean you can afford to carry a $1,000 or $2,000 balance."

Carrying balances on credit cards can be quite costly, especially if the student can make no more than the minimum payment each month. Detweiler of Debt Counselors says that, by sticking to minimum payments, it would take a student more than 12 years and $1,115 in interest to pay off a $1,000 bill on a card with an 18 percent annual rate.

Worse yet, falling behind on credit card payments hurts a student's credit and a bad credit rating can affect their ability to rent an apartment, or buy a car or house. The mark stays on a person's credit record even if the bill is later paid in full, and insurance companies and employers may also check credit reports.

"It's not like cutting a class," Bucci said. "The credit report folks are there and they are watching, and it will be on your report for seven years."

-- Posted: Aug. 27, 1999