College students - avoid credit hassles

According to a study conducted by Twentysomething Inc., a consultant firm specializing in young adults, 85 percent of the class of 2011 will wind up moving back in with their parents once they get their degrees.

The cause? A combination of a shrinking entry-level job market and crushing college loan debt.

“The average student accumulates over $23,000 in student loan debt and $4,000 in credit card debt during their years as an undergraduate student,” said Gabe Albarian, a former college student who avoided a credit crisis during college by following the advice he offers in Financial Swagger, a guide for young people who want to escape the pitfalls of credit disaster.

Albarian composed the following tips aimed at helping those who are just entering college or about to graduate establish and keep a good credit rating:

New credit cards. Credit card companies love to hammer new students and graduates with seemingly generous offers of unsecured credit cards. Don’t take the bait. There are other ways to establish credit without opening yourself up to introductory interest rates that change after 6 months or the temptation to use that credit to live above your means.

Authorized users. If your parents are financially responsible and pay their bills on time, you may be added as an authorized user on their credit card. Make sure to provide your personal information and social security number to the card company so your credit history report will reflect your transactions.

In about six months, after you’ve learned how to manage your credit reliably and maintained a responsible payment history, you’ll receive your own card offers.

Secured credit card. The temptation will be to apply for an unsecured credit card, but that’s not wise or necessary to establish good credit and good habits.

Instead, apply for a secured card at your local bank. With a secured credit card, you place a nominal amount of money in a savings account that cannot be withdrawn, as it is used as recourse to pay back your debts in case you do not pay them yourself.

Your spending limit on your secured card is exactly the amount you place in the linked savings account – hence, your debt is secured by the money in your account. Just like a normal credit card, you’ll receive a monthly statement to pay off a portion or all of your debts, but meanwhile your payment history will be reported to the credit bureaus.

Within months you will receive offers for other unsecured cards. It’s not necessary to have more cards than you need, because not only will it present temptation, but it may also lower your credit rating.

“The bottom line here is that once you have use of a credit card, you want to pay your bills on time, keep your balances low, don’t take on more credit than you need and if you’ve missed a payment you should get current and stay current,” Albarian said. “Good credit can be your best financial friend as you go through life and bad credit can be the ball and chain that drags you down.”

Tags: life, credit, college