Financial Tips: Seven Things Students Need to Know About Credit Cards

Read these helpful hints about credit cards and issues associated with them that will keep you or your student out of the credit card trap.

Credit card purchases are not free. Don't let your teen be fooled by the fact that no money changes hands during purchase transactions. A bill will be forthcoming and payment may be expected in 25 days or less. With a credit card, you are buying now and paying later. Each credit card purchase is like taking out a short-term loan.
Credit card officials are keeping score. Teachers aren't the only ones who use grades. Lenders also grade consumers on how quickly they make good on their debts. Teens who pay their bill promptly will get good credit scores and will get better interest rates on car loans and home mortgages in the future. Teens who don't may end up with low credit scores and could have a hard time getting competitive interest rates, low rate car insurance or even the job they want in the future.
There are cheaper ways to get a T-shirt. A free T-shirt or a Frisbee is not free if you have to sign up for a credit card with a $25 annual fee, an interest rate in the high teens, and a short grace period. Selecting a credit card is too big a decision to make on your way to a sports event.
Credit cards are not all the same. Explain that if that they will have a credit card, they should shop for the best deal they can get. That means learning what annual percentage rate, grace period, spending limit and other credit card terms mean.
Carrying a credit card balance is costly. Let your child know that they will be charged interest on the amount of their purchases once the grace period is over. For example, if they charged $1,000 on a credit card with an annual percentage rate of 17 percent and made a minimum payment of $25 or 2.5 percent, they could pay an additional $1,000 in interest.
Credit cards are helpful during emergencies. Its hard for teens (or anyone else for that matter) to budget for unplanned expenses like a car repair or a last minute plane ticket home because of a family emergency. When possible students should pay their credit card balances in full to improve their chances for being approved for credit during an unplanned event. As a rule of thumb, students should only charge items they can pay off in 90 days or less.
Credit counseling is available. Let your teen know that they can get help with credit card problems. They can locate a National Foundation for Credit Counseling affiliate, like CCCS of Central New York, wherever they are in the country by calling 1-800-388-2227 or visiting www.debtadvice.org.

Taking some time to "talk credit" will keep your student from having to learn these lessons the hard way.