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College students, prepare for a credit card deluge

You're young, keen to assert your independence, and you're being offered credit cards wherever you turn.

It's become a college rite of passage.

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Even before this year's freshman class settled into their dorm rooms, the credit card offers were rolling in.

No income? No problem
"As long as you're a full-time student, you can get a card," said Gerri Detweiler, author of The Ultimate Credit Card Handbook. Why is it so easy? Because credit card issuers realize that parents can be counted on to bail out students who run up oversize balances or fall behind in payments.

And credit card issuers want college students as customers because students tend to be loyal to their first credit card, and they'll keep on charging long after graduation.

Credit card issuers used to require parental approval before issuing a card to students who had no independent income source, but they abandoned that hands-off strategy in the '90s.

Colleges are raking in the dough
Instead, the card issuers aggressively went after the student market. They allied themselves with college campuses with exclusive marketing agreements and other financial "sweetners," like multi-million dollar donations for naming rights to university buildings. According to Robert Manning, author of the book Credit Card Nation, those deals could now yield the nation's 300 largest universities an annual average of from $750 million to $1 billion in the next decade.

Used well, credit cards can play an important role for college students. They teach financial responsibility and ease the way into the postgraduate financial world.

Detweiler puts it this way: "The best reference you'll find on a credit report is a major credit card paid on time, all the time."

But credit cards can also leave financial bruises that don't heal until long after the diploma has yellowed on the wall.

Experts say students too often learn about the high cost of credit cards the hard way: after they run up balances.

"Learning as you go along is expensive," said Steve Bucci, Debt Adviser for and president of Consumer Credit Counseling Service of Southern New England.

Play it straight
The best way to avoid having to explain that bill to mom and dad is to learn to get by with one or two low-limit credit cards. Keep those balances down. A credit limit of $1,000 is plenty for most students.

"We have a rule of thumb for kids who say they need a card for emergencies," Bucci said. "If you can eat it, drink it or wear it, then it's not an emergency."

"We also caution kids: If a lender gives you cards with $1,000 or $2,000 limits, that doesn't mean you can afford to carry a $1,000 or $2,000 balance."

Carrying balances on credit cards can be quite costly, especially if you can make no more than the minimum payment each month. Detweiler says that by sticking to minimum payments, it would take you more than 12 years and $1,115 in interest to pay off a $1,000 bill on a card with an 18 percent annual rate.

Worse yet, falling behind on credit card payments hurts your credit and a bad credit rating can affect your ability to rent an apartment, or buy a car or house. The mark stays on a your credit record even if the bill is later paid in full, and insurance companies and employers may also check credit reports.

"It's not like cutting a class," Bucci said. "The credit report folks are there and they are watching, and it will be on your report for seven years."

Check out this syllabus full of answers for students and parents on the unique features and traps of credit cards targeted to students.


-- Updated: Jan. 24, 2005




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