What college students need to know about credit cards
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (known as the Credit CARD Act) placed limits on the ability of those under 21 to get a credit card. It also set strict limits on card companies' ability to market to college students. However, whether they get a credit card now or later, it's a good idea for young adults to learn good credit habits early. The Minnesota Society of CPAs recommends these tips for avoiding credit pitfalls.
Think twice before you sign
When you spend a little more money than you have, you end up carrying an outstanding balance. And the credit card companies charge you interest on that balance, over and over again, every month. In fact, they even charge interest on the outstanding interest payments you haven't paid off yet. That means that the pizza you charged sophomore year could cost you a couple of hundred dollars in interest over time if you don't pay it off along with the rest of your full balance each month. At most schools, you or your parents can deposit money in a spending account and you can then use your school spending card at a wide variety of stores or restaurants. It's an easy option that does not involve spending money you don't have or incurring interest charges, and probably a better choice than a credit card for most college students.
Don't charge tuition
In a 2009 Sallie Mae study, 30 percent of students were using credit cards to pay for tuition, which is a very expensive way to pay for college. If your family is tempted to use this option to finance college costs, CPAs urge you to research much less expensive student loan opportunities. Turn to the CPA profession's 360 Degrees of Financial Literacy site and to the College Board site for further details on student loans and how they work.
Create a budget to avoid a balance
Even many adults get into the bad habit of paying only the minimum balance on their credit cards each month. As we've already noted, the part they don't pay--the outstanding balance--can lead to outsize interest bills over time. It's a good idea to come up with an accurate estimate of how much you can afford each week, then stick to spending no more than that estimated amount. Use the credit card for convenience if you're short of cash when you need to make a purchase--in other words, not to go into debt.
Be on guard for identity theft
Once you have a credit card, you are vulnerable to identity theft, which occurs when a con artist steals your credit card information in order to make fraudulent purchases. That's why you should not leave your bank or credit card statements or other documents that show your Social Security number, date of birth, driver's license number or other confidential data where they can be stolen. Identity thieves can use all of this personal information to create fraudulent accounts in your name. It's also important to review your bank, credit card or other financial statements each month to look for unauthorized purchases. If you find unexplained activity in your accounts, alert the financial institution right away.
Turn to your local CPA
College brings new responsibilities, including the challenge of managing your money. Remember that your family's local CPA can provide the advice you need to make the best financial decisions.
The Minnesota Society of Certified Public Accountants (MNCPA) serves the public interest by advancing the highest standards of ethics and practice within the CPA profession.
MNCPA delivers on that promise by offering extensive continuing professional education and resources; advocating for members and the public with regulatory agencies and boards; and mentoring and encouraging the CPAs and business leaders of tomorrow. Founded in 1904,
MNCPA's 9,500 members work in public accounting, business and industry, government and education. To locate a CPA, visit www.mncpa.org/referral.