TIPS Considering the Costs and Benefits
of Credit as a College Student
Sandy Preston, Extension Educator
University of Nebraska Cooperative Extension
Credit can be a blessing or a hindrance. Establishing a credit history is important and being without a credit card can be limiting. You can't reserve a hotel room, purchase on-line or over the telephone. However, if you let your credit use get out of hand, you could be suffering the consequences for years to come.
When you go to college for the first time, you will be bombarded with hundreds of offers for quick credit, promising free airfare, gas and much more. It may be difficult to resist the lure of immediate accumulation of the things you would like to have. As a student, it can be difficult to know how much credit you can manage.
Remember that credit card companies make most of their money from interest. (That’s the money you pay for the convenience of carrying a balance.) Many students get into serious financial trouble by mismanaging credit. Some will drop out of school or will spend the first several years of their new careers paying off debt instead of establishing a new home and life.
If you and your parents plan for you to use a credit card you need to establish your limit and a strategy for use before you receive the card. Steps to managing your credit effectively include:
Own only one card. Set your minimum balance low ($500) to help control your spending. Never get a second card to pay the balance on the first. Don’t charge more than you can afford to pay off each month.
Consider your available funds. Will you be able to pay the entire balance each month?
Consider keeping the card for emergency uses only.
Watch the costs of credit. Be sure you know the Annual Percentage Rate and how it is calculated. Shop around for the best deal. Read the fine print carefully.
Avoid unnecessary charges. Late payment and over limit fees can add hundreds of dollars.
Avoid maxing out your credit lines. Spending up to your limit suggests that you overspend.
Pay bills promptly and pay more than the minimum.
Protect your card from theft.
Save receipts and review them every month. Check to be sure that all credit charges are accurate.
Keep a record of your charge as you go, so your balance will not be a surprise when your bill comes.
Close accounts you are not using. Open, unused accounts are still considered as a part of your available credit limit because you could use it any time. If it appears that you have more credit than your current income and credit history qualifies you for, you could be considered as a high credit risk. Some of your credit options could be canceled or result in higher interest charges. Too many credit cards can affect your ability to get car loans, student loans, mortgages or to rent an apartment.
Read and understand about credit card insurance offers. Consider carefully if the cost of the insurance equals the benefits.
Credit Tip - While cash advances can look attractive, keep in mind that interest usually accrues from the moment you accept the cash. If you add in the transaction fees and the higher interest charges for cash advances, they can be more expensive that you anticipated.
To learn more about College Spending contact your local Extension Office and request a copy of the College Spending 101.
If you want to leave feedback about this article, go to unlforfamilies.unl.edu and click on TIPS and then feedback.
