College Students and Credit

Most people think of college students as 20-year-olds who are just starting out in life. While many college students fit that profile, today many people in their 30s and 40s are returning to school to improve their earning potential in a downbeat economy. Regardless of age, college students must handle their credit carefully. If possible, young college students should begin building a credit history before they graduate, but they must also guard against taking on too much debt due to careless spending. The average college student graduates with $20,000 in student loan debt. It's critical for students to see that debt as an opportunity to establish a positive credit history. Here are some things college students should know about credit and debt.

CARD Act of 2009

The CARD Act of 2009 enacted new consumer protections as well as new rules designed to keep college students from taking on debt they cannot afford. Today, anyone under age 21 who wants a credit card must be able to prove he or she has the income necessary to pay credit card debts. Credit card issuers are prohibited from handing out freebies like t-shirts and coffee mugs to students when they sign up for a credit card. Having a credit card as a student isn't necessarily a bad thing, but the days of college freshmen signing up for a credit card without the ability to pay for it are mostly over.

Secured Credit Cards

Secured credit cards require the cardholder to have a savings account with a balance equal to the credit limit. In other words, the cardholder must set up a savings account with $500 in it to qualify for a card with a $500 line of credit. These are great for building credit, but there are unscrupulous secured credit card issuers who charge outrageous fees, and students must avoid these. The best place to start looking for a good secured credit card is a local bank or credit union. They typically have much better terms than many national card issuers who are only interested in how much they can take from students in fees.

Being an Authorized User

Becoming an authorized user on the credit card of a parent or other relative is another way to begin creating a credit history. If the original cardholder has good credit, the authorized user is able to "ride their coattails" by responsibly using the credit card. Obviously, there are risks to this approach, such as

• Students taking unfair advantage of their new spending power
• Original cardholders developing their own credit problems
• One person's credit problems spreading to others

While this technique is not as effective for building credit as a secured credit card, it is an option worth considering.

Being Careful with Credit

College presents many opportunities for taking on too much debt. It's all too easy to get out the credit card when a group goes out for coffee or pizza, and before long, the charges really add up. College students should stick with credit cards that have low credit limits, and they should graduate with a plan and a commitment to paying off student loan and other debt.

Sources:

http://articles.moneycentral.msn.com/CollegeAndFamily/MoneyInYour20s/HowToBlitzYourCollegeDebts.aspx
http://getoutofdebt.org/32699/quick-credit-tip-become-an-authorized-user
http://www.reuters.com/article/2011/12/27/us-studentdebt-middleage-idUSTRE7BQ0T620111227
http://www.stltoday.com/business/columns/jim-gallagher/college-students-and-credit-cards-don-t-mix/article_394b8bfb-0d87-5aa1-812f-604dc9919663.html
http://www.saycampuslife.com/2011/12/29/keep-your-credit-strong-while-in-college/