It's the first day of your college life. Found your dorm room? Check. Found the dining hall? Check. Found the right credit card?
That could be the scenario at any college campus. For the past two decades, credit card issuers have been a part of every freshman's experience as they vie for new customers they hope will carry their cards through their college years -- and for decades beyond.
However, the new Credit Card Accountability, Responsibility and Disclosure Act may rain on this campus credit parade. Under the law, which largely takes effect in February 2010, card applicants under age 21 will be required to find a co-signer, pass a financial literacy course or verify income sufficient to cover any debts they charge up.
For students that do qualify for cards, the downside is that may not pay off the card while they're in school. Those that don't will end up carrying not only student loan debt but also credit card debt when they graduate. And once they're out of school, the expenses only mount.
- Credit card pitfalls
- The Schumer Box
- Comparison shop
- Aim to be a deadbeat
"In my mind, the real potential for problems comes in the first two or three years starting out," says Tamara Draut, vice president of policy and programs at Demos and author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead." "There's a serious mismatch between earnings and cost. The credit card will be a lifeline. If you can't ask parents for help and your car breaks down, that will go on the card. Those circumstances will add up. If you add clothing and dinners out, you'll be in over your head. Reality alone is probably going to result in some debt."
Credit card pitfallsThat's the dilemma: You won't be earning much money, you'll have lots of expenses and you will likely have to put some things on a credit card just to survive. So how can you manage your credit card to minimize the damage?
"Late payment is the most common pitfall, and it's one of the few areas where you can work with the credit card company," says Draut. She recommends calling the credit card company to set the payment due date. You can arrange it for the time of month when you're more likely to have money to pay the bill. "But paying late leads to trouble of all kinds," Draut warns.
Every credit card company charges a late payment fee, and the average late fee is $24 for fixed- rate cards and $29 for variable-rate cards, according to an April 2009 survey by Bankrate. A late payment will also show up on your credit report, which might then trigger the interest rate increase "at any time for any reason," which is in the fine print of most credit cards. That's known as "universal default," and although some credit card companies, such as Citi, are abandoning the practice, most still do it. If you're late paying on any type of bill reported to credit bureaus, the card issuers may raise your credit card interest rate.
The Schumer BoxEvery credit card shopper should become familiar with the Schumer Box, which every credit card offer must have. It's written in legalese and barely understandable -- and it's usually found at the very bottom of the credit card Web site under "terms and conditions" -- but there are many sources that explain what the terms and conditions mean.