Credit Card Advice for College Students

If you are one of the lucky ones, your parents may be footing the college bill for you. If so, mom and pop may even give you a credit card “for emergencies.” If you are on your own, however, a credit card can be a boon or a disaster depending on your level of responsible behavior.

It is also important to talk about this subject in the light of the current economic downturn (early 2008). The consequences of the misuse of credit are much worse. The use of a credit card must be part of the larger credit picture, including student loans.

In the past, it was assumed that you could come out of college with a degree, bachelor’s, Master’s, or Ph.D., and pretty much find a job commensurate with your education. If you had student loans or credit card debt, you would be able to pay off those debts within a relatively short period of time, assuming decent money management.

That job at the end of the education rainbow is no longer a done deal. Unemployment is going up, prices are going up, and jobs are still going overseas. You can no longer assume that you will leave college, even with a Ph.D. in some specialty, and slide right into a lucrative position. Leaving college with a large debt hanging over your head just might put you in a hole that will take years or even decades to get out of.

The cons of getting a credit card or cards are simple. If you do not use the card responsibly, you could end up with a lot of debt upon leaving college, with no assurance that you will end up with a good job, or any job, right away. The job market is tougher than ever. While a college education is still probably a good idea, you need to really be sure that you do not create a lot of debt in the process and be pretty sure that your area of study is going to produce a job when you get out.

The other credit card con is simply the possibility that if you create a lot of debt and are unable to pay it off or even keep up with the payments, you could wreck your credit rating for a very long time, making it difficult or impossible to get loans for a car or house.

The benefit of a credit card is primarily as an emergency loan. You may need to come up with some money in a hurry before your next paycheck, scholarship, or student loan comes through. It is also more convenient than cash. If you cannot pay off your credit card every month, you have probably made a bad decision. As I said, if you come out of college with student loans to pay off, additional credit card debt may create a hole you may never get out of.

The other benefit of a credit card, if used responsibly, is to establish a credit history. The Catch 22 of establishing credit used to be that you couldn’t borrow money if you had no credit history and you couldn’t establish a credit history without borrowing money. A credit card is a form of borrowing money and the responsible use of a credit card will help to establish a history of credit and a positive credit rating.

If you get a credit card there are certain things to watch out for. Never get a card that charges an annual fee. If you can get a card that gives you a kickback or airline miles for using it, go for it. Always check your monthly statement carefully. To be on the safe side, assume that all banks and other credit card issuers are crooks. You won’t be far off.

Aside from checking your actual purchases against the monthly statement, look on the left side of your statement near the bottom. That is where most companies put their special charges, like late fees, or charges for things like credit card protection (something you should never purchase). If you lose your card or if it is stolen, you will not be charged for illegal purchases if you report the card stolen as soon as possible.

However, credit card companies have been known to charge their customers late fees even when the payment was on time and have also charged for special services, like credit card protection, when the customer did not request it. This is not theoretical. It happened to me.

And just yesterday I read about a conversation at an investor’s conference where the writer spoke to a man who worked for a bank. He casually mentioned that they placed a $35 charge on their cardholders’ statements and nobody even noticed. If you noticed and called, the customer service representative would apologize for the mistake and remove the charge from your bill.

In my case, my credit card company was charging late fees to everyone and also charging for the extra service. I only checked because I heard they were being investigated. I found both charges on my bill. At that time, many years ago, it was $29.95 for each.

Did anyone go to jail? Of course not. What happened was that there was a class action suit. As a result of this suit, the company paid a few million bucks, much less than they actually stole. They admitted to no wrongdoing. The lawyers got their millions and the customers who were robbed got their pennies. If you think I’m kidding about the pennies, I have a check for one penny (which I will always keep and cherish), which was my share of the class action suit. The amount actually stolen from me was nearly $60.

A credit card is a great convenience or a great danger depending on who you are and how responsible and self-aware you are. Treat them with great respect and make sure that you are in charge of your credit card and not the other way around.