While parentâ€™s mail boxes are filling with credit card bills from summer vacations and back-to-school shopping, their college-aged child is likely receiving offers for credit cards of their own. Due to the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), young adults under the age of 21 applying for credit now must demonstrate the ability to pay or have a co-signer in order to be approved.Â Thus, the 21-year-old college student has replaced the entering freshman as the likely target for credit card marketing.
Â Building a positive credit history while in college can certainly help the young professional move on with his or her post-graduation life. On the flip side, abusing credit can work against a person when trying to land a job, lease an apartment, or buy a vehicle.
The NFCCâ€™s 2013 Financial Literacy Survey found that 33 percent of respondents indicated they learned the most about personal finance at home.Â Although at first glance this can appear as positive, problems often arise if the parents have poor financial habits which the children observe and subsequently carry into their own financial lives. Further, the survey revealed that only five percent attributed their personal finance knowledge to what they learned at school.Â This number is not surprising, as many states do not include a personal finance course as a requirement for graduation from high school.Â
Stepping into the world of credit without adequate personal finance training is asking for trouble, as responsibly managing credit is critical to building a solid financial future. The NFCC recommends that young adults consider the following tips for successfully navigating credit:Â
- Start slowly.Â Donâ€™t apply for more credit than is needed.Â A little plastic can go a long way, particularly in the wallet of someone new to credit.
- Donâ€™t act like a kid in the credit candy store.Â It can be tempting to splurge on music downloads and late-night pizzas, but small purchases can add up quickly.Â
- Never, ever charge more than can be paid in full when the bill arrives.Â This is the cornerstone to successfully managing credit.Â Use this financial trick: Record each charge in the check register, and deduct the amount from the balance just as though a check had been cashed.Â This method guarantees that the funds will be available when itâ€™s time to pay the bill.
- Choose the right card. New homework assignment: Research whatâ€™s behind the credit card offers. Fully understand the terms, interest rate, fees and credit limit, as these features will impact the final decision.Â Some student cards also offer rewards such as miles or points that can be redeemed, but read the fine print before signing on the dotted line.
- Think long term.Â Negative marks on a credit file can follow a person for years. Evaluate charging decisions in light of tomorrow, not today.
- Protect the card.Â Identity theft is rampant on campuses, and a credit card lying on a desk is as good as gold to a thief.Â Since studies show that identity theft is often committed by someone the victim knows, donâ€™t be naively trusting.Â
- Donâ€™t allow others to use the card, as regardless of who runs up the debt, payment remains the cardholderâ€™s responsibility.
- If things get out of control, remember that businesses still accept cash, and a debit card can be used for payment in most locations.Â Donâ€™t hesitate to put the credit card away if things get out of hand.Â
The college student potentially has 50 years or more of credit life ahead of him or her, making it critical that sound financial habits are established at a young age.Â Â Credit can be a friend or a foe.Â That outcome is determined by whose hand is holding the plastic.Â
Before applying for a credit card, young adults would be well-served by reaching out to an NFCC Member Agency for a one-on-one financial review with an NFCC Certified Financial Professional.Â To be automatically connected to the agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org.Â For assistance in Spanish, call (800) 682-9832.Â
Gail Cunningham is Vice President of Membership & Public Relations with the NFCC.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.