Business Math in Action

Give Yourself Credit-Carefully

It takes brains to get into college, but some students appear to be leaving theirs in the dorm when it comes to credit cards. Over the past decade, credit card companies have begun to target college students by setting up tables on campus and offering free T-shirts, coffee mugs, and water bottles to anyone who fills out an application. Market research has shown that young people often remain loyal to the first cards they get, which makes students very appealing to credit card companies.

Credit cards are good to have in case of an emergency. If you use them wisely, they can help you build a strong credit rating that will make it easier to get a car or home loan later on. Yet, too often, students are unaware of basic facts about credit cards. Recent surveys found that:

Some students don’t realize that a credit card contract is a legal document. You are legally required to pay off all the debt, not just the minimum monthly payments.

Many students do not understand how finance charges and late fees work. They don’t realize that making a late payment can result in the finance charge jumping to 20 percent or higher for as long as they have the card.

It’s not unusual for students to have many cards and to be paying only the monthly minimums on each.

Students rarely shop for cards with low interest rates. Instead, they sign up with whatever company sets up a table on campus.

Few students realize how damaging bad credit can be to their future. A poor credit rating can make it difficult to buy a car or a home, to travel for business, or to rent an apartment.

Over the past several years, credit card companies have become more devious in their billing strategies. Their tactics include mailing bills late so customers have only a few days to make a payment before being slapped with a late fee; raising late fees (they’re nearly $30 now); and getting rid of grace periods.

Savvy students will learn how to shop for credit cards, how to read the fine print on the application, and how to control their spending so they don’t go into debt. A few guidelines:

Get only one credit card. That way you have one bill every month and can see exactly how much you owe.

Research credit card companies and choose a card that has low combined interest rates and finance charges.

Get a card with low or no annual fees.

Be sure to find out what the APR will be after the low introductory rate is over. The low rates usually expire three or six months after you get the card.

Try not to use your credit card to borrow cash. The interest rates for cash are much higher than they are for store purchases.

Don’t be distracted by the minimum monthly payment. Instead, try to pay off the balance every month. If you can’t do it, pay as much as you possibly can. If several months go by and you can’t pay off that balance, you are spending beyond your means. Put the card in a drawer and go back to using cash until you have paid the balance in full.