As college students head off to school, it's important that they develop solid credit card habits. If not, their poor pinpad decisions and damaged credit scores can potentially haunt them for years to come.
This is especially true for incoming freshmen who will soon be tempted by free T-shirts and other knick-knacks that come with applying for credit cards on campus. If students aren't careful, they could charge their way into personal bankruptcy.
Here are five tips to avoid a credit card catastrophe:
- Don't apply for too many cards. Applying for too many new cards can damage a person's credit score. It's not quite as bad as missing payments, but it can cost you. Avoid opening a string of store-branded credit cards for the sake of an attractive one-time deal -- your credit score will pay for it in the long run.
- Beware high credit utilization. Credit-scoring systems factor in your credit utilization, which is the amount you owe on your card divided by the credit limit. Using up that credit line can hurt your score. Try to use less than 25 percent of your available credit. Consumers with the highest scores typically use about 10 percent of their available credit, reports USA Today.
- Parents: Authorize your child as a user. Parents who want to help their college kids build a credit history can consider adding them as authorized users on low-balance credit cards. A parent's score is vulnerable to the student's irresponsible spending habits, but authorized use allows the parent to revoke access to the card if needed. That's much more difficult to do when a parent co-signs for a card with a student.
- Apply for a secured card. Another way for a student to build a credit history is to get a secured credit card. Secured cards guarantee approval because the credit line is established through a security deposit (generally, you must deposit at least $200). It's not ideal because it has annual and application fees, but it's a solid way to report a student's payment history to the credit bureaus and build credit.
- Apply for a student credit card. Designed just for college students, student debit cards build credit and throw in credit-building incentives like cash-bonuses for paying bills on time, reports The Christian Science Monitor. Watch out for sizeable annual fees and interest rates, however.
For more tips, check out FindLaw's section on Credit Cards.