Eileen
Ambrose -- Personal Finance
By
Eileen
Ambrose | eileen.ambrose@baltsun.com
July
21,
2009
Thanks to credit card
reforms
kicking in next year, card issuers will have a tougher time getting
teenagers
on college campuses to apply for plastic without their parents'
knowledge.
But what about now? Students will arrive on campus next month, and card
issuers
will be there to greet them at many schools. Will card companies make
one more
big final push to sign up students?
"Issuers will try to continue to market to college students between now
and the time the legislation takes effect," says Bill Hardekopf, chief
executive of LowCards.com, a site that tracks cards.
If your kids are headed to college soon, don't let them leave home
without
lessons on money management. That means teaching them to budget and
handle a
checkbook and debit card before they graduate to a credit card. Even
after most
of the credit card reforms take effect, students are going to need
these
lessons.
Card issuers target young adults because people tend to be loyal to
their first
card, says Christine Lindstrom, U.S. Public Interest Research Group's
higher
education program director. Plus, young adults are more likely to carry
revolving debt and pay late, generating more interest and fees for the
card
issuers, she says.
Reforms that take effect in February prevent card issuers from
extending credit
to those younger than 21, unless they show they have the means to pay
the bills
or they have a co-signer, such as a parent, who will repay if they
don't. Card
issuers also will need a co-signer's approval to increase credit limits
if the
cardholder is under 21. And card issuers won't be allowed to offer
T-shirts or
trinkets on campus to entice students to apply for cards.
Some credit experts say students need a credit card to start building a
credit
history and credit score. But there's no need to rush this. And it can
even
backfire if students mismanage cards.
Young adults should worry less about their credit score and focus more
on
establishing good financial habits between ages 16 and 21, says Craig
Watts, a
spokesman for FICO, the company that created a widely used credit
score.
"The credit score will take care of itself," he says.
A survey released in April by Sallie Mae indicates that many young
adults
aren't savvy managers of credit. The survey of undergraduates last year
found
that 82 percent racked up finance charges by carrying monthly balances
and 40
percent used their card knowing they didn't have money to pay the bill.
Undergraduates on average carried record card debt of $3,173, or 46
percent
more than four years earlier. And half had four or more cards, more
than
necessary to build a credit history.
Some schools, such as Goucher
College and the College of
Notre Dame of Maryland,
don't allow
marketers to pitch cards on campus out of concern for students.
"We don't want to encourage [students] to have debt," says Sharon
Hassan, Goucher's financial aid director. She adds the school offers
money
management sessions to students.
If your children are going away to school soon, start them off with a
checking
account and a debit card, where money is pulled directly out of their
bank
account with no interest charge.
After a few years of living on their own, paying bills and managing
credit,
they can apply for a credit card under their own name when they turn 21.
Never co-sign for them, advises Janet Bodnar, author of Raising
Money Smart Kids. You're on the hook for the student's debt,
plus your
child can damage your credit record, she says.
Besides, she adds, students are more likely to learn money skills if
they are
responsible for their own debt.
Once 21-year-olds have a card and make on-time payments for six months,
they
will have enough of a credit history to create a score, says Watts.
And when they start repaying student loans on time, those payments will
further
help their credit record.
Copyright © 2009, The
Baltimore Sun
