What Students Need to Know About Credit Cards?

The problem with college kid’s having a credit card is that they invariably make some careless moves on campus and end up harming their credit score. So never do such mistakes. And much of the damage is done before they know what actually has happened. Worse they don’t realize how low credit scores can prove costly in the long run. Here are the few precautions that every parent and their kids need to take before using a Credit card.

  • Starting with a low score is like starting ones financial career on a negative note.  Given that the impact of low credit score is cumulative this would effectively translate into higher costs when seeking more loans, down the road.
  • Though it is difficult for those below 21 years to get a credit card, it isn’t impossible. If those below 21 can prove they can afford payments they always stand a chance of getting a credit card. If not, a student can get it if a parent or someone above 21 is willing to co-sign it for them.
  • Using credit cards a bit too often is a temptation which students can hardly resist. Seeing parents pull out the card every now and then to build up mileage or airline points is a habit which rubs on to them pretty soon. The problem is they unknowingly invite trouble by using cards for even small items like pizza. Credit-scoring system is based on credit utilization, which is calculated by the amount you owe divided by the credit limit. The more one uses up the credit line, the more are the chances of having a lower score.
  • When a student seeks higher loans, lenders would judge his credit history by wanting to know how much of his available credit he has been actually using. Students, who use less than 25 percent of their available credit, are rated higher than students who have been using their cards liberally.
  • At times a student’s credit score can get hit without him being aware. This may happen when utility bills remain unpaid and the student vacates his hostel or apartment. With dues accruing the student with his name to the bill is blissfully unaware of how his credibility is sinking.
  • Parents should permit the use of low balance credit cards. This can make the student understand the limits, as parents —being the authorized users— would get penalized if the kid happens to go overboard.  This is the best way to check misuse of cards by college children and prevent them from getting blacklisted at a very tender age.