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10 Things College Freshmen Should Know About Credit Cards

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Most students have their first encounter with credit cards in college. As young consumers with lots of purchasing potential, even first-year students are targeted by marketers. In fact, 68% of students under 21 say they’ve received at least one credit card offer by mail in the last 12 months, according to the University of Houston Law Center.

If you have a student going off to college this fall, does he or she know the ABCs of credit cards? If not, you could help your future freshman become smarter with money by providing a tutorial on these 10 basics:

  1. Be aware that using a credit card means borrowing money you must repay. You’re making a legal contract with a lender. If you’re under 21, you have to have a co-signer or proof of income to show you can pay what you owe. Parents, if you choose to co-sign for your child, remember you are ultimately responsible for the payments and activity on the credit card account will appear on your credit report.
  2. You don’t have to apply for a credit card just because you’re offered one. It may be best to wait for six months to a year to see if you can get by without a credit card.
  3. You may not be offered the best deal. If you do need a credit card, shop around to find one with a low rate and no annual fee.
  4. Make your monthly payments on time. Missing the due date is one of the surest ways to damage your credit record, not to mention incurring the pain of a late-payment fee and sometimes a penalty interest rate.
  5. Pay off your balance every month. If you can’t, at least pay more than the minimum. As the hypothetical example below shows, if you owe $2,500 and make only minimum payments, it could take 34 years and cost nearly $8,800 to zero out your balance.

    Calculations based on APR of 18%. Example courtesy of National Association of Federal Credit Unions Money Smart—Financial Education Curriculum.
  6. Avoid using your credit card to get cash at an ATM or branch. Credit cards are a great tool to carry in a wallet for emergency purposes or for larger purchases. A good rule of thumb is that if you don’t have cash on hand or in your savings or checking account, then you probably should forgo borrowing money for that $20 pizza.
  7. Know your credit limit—and don’t exceed it. Keep tabs on your account balance. If it goes above your credit limit, you’ll be hit with a fee.
  8. Don’t share your credit card number with a friend. It’s like handing over cash. Lots of cash. Cash you’ll be responsible for repaying if your friend doesn’t.
  9. Compare credit card receipts with your account statement. If any duplicate purchases or unauthorized transactions show up on your statement, call the customer service number on your statement right away.
  10. If you lose your wallet, cancel your credit card immediately. You can prepare for this possibility by photocopying the front and back of your credit card (your debit card, too). The back of each card will show the phone number to call if the card is lost or stolen. Prompt reporting is the best way to avoid liability for any fraudulent use, so don’t delay!