College years are not a time of financial involvement for most students, and credit scores are far from their minds.
They may have student loans for tuition, but most are concentrating on education rather than home ownership or cars. Most students who pay their own way are avoiding extra debt because they simply don’t have the time to hold down a job that will return enough to pay a lot of bills.
But… they should still work at establishing credit, because they’ll need it when they leave school and enter the working world. Unless they’re staying at home for a while, the first thing they’ll need is a place to live – and landlords now want to see good credit reports.
Next, depending upon where they live, they’ll need a car to take them to that new job. Without good credit scores, they’ll pay high interest for that car.
Thus, every student should have at least one credit card. Unless they have some bad credit history, they should be able to get at least a low limit, high interest card. If not, they can get a co-signer, piggyback on a parent’s good credit, or get a secured credit card.
As with everything, students should read the fine print before making application for any card.
Those with little or no credit are often prey for companies promoting “Fee Harvester” cards. These come with a low credit limit, and so many fees that the cardholder is in debt for almost the full balance before using the card even once. Shy away from cards that charge annual fees, set-up fees, transaction fees, statement fees, and inactivity fees.
Right now, card issuers can and do charge as much as 78% of the credit limit in fees. Under the Credit Cardholder’s Bill of Rights, they’ll be restricted to charging 25% of the credit limit – which is still excessive. They also charge interest rates that top the charts. So read the fine print – all of it!
When piggybacking – where the student is simply added to another person’s credit card account – students should choose wisely. Everything about that other person’s use of that card will go on the student’s credit report. So if they maintain balances over 50% or make late payments, the effect of piggybacking can be negative.
Secured cards are another option for students who have trouble getting a “regular” card. By depositing money in a savings account that’s used for collateral, there’s no danger of being harmed by someone else’s credit mishap. Again, be sure to read the fine print for fees, and always, always, always make the payments on time.
CreditScoreQuick.com
