What young adults don't realize is that treating their credit card as a plaything can sabotage their financial lives. An increasing number of employers are pulling the credit reports on college graduates who are seeking jobs. If they spot too much debt or a history of late payments on a credit report, a prospect who aced her job interview might never know how she lost out.
Lackluster credit scores will also prevent a college grad, or anyone else, from getting the most favorable interest rates when buying a car or on a home loan.
Thorne, who is a regular contributor on www.CreditSlips.org, an academic Web site devoted to credit issues, says her students are furious when they learn how the industry jerks them around. For example, if a cardholder doesn't pay his bill on time, the issuer can hit him with a late fee and raise his interest rate.
But that's not all. Other creditors who are getting paid promptly could also penalize the student with a much higher interest rate. Imagine if schools adopted this universal default provision. If a kid got a D in calculus, his other teachers could pile on and automatically give him the same grade.
How can college students handle credit responsibly? Thorne makes these recommendations:
- Unless it's an absolute necessity, wait until you're a senior to get a credit card. You won't need a credit history until then.
- Get a card through a credit union, which often has more reasonable rates, or through the financial institution where you have a checking or savings account.
- Obtain a card with the lowest credit limit possible. What's more, tell the issuer that you don't want the credit limit ever raised without your permission.
- Pay the bill as soon as it arrives.
- If you leave campus over the summer, make sure your card issuer sends the bill to your new address. If bills pile up over the summer, you'll face a huge financial mess when you return to school.
Note: After receiving e-mails regarding a recent column on reverse mortgages, I concluded that I needed to take one more swipe at the subject. While I mentioned costs in the column, I decided I should have shared some idea of what they are. Typical fees for an FHA reverse mortgage in San Diego could easily be in the $15,000 to $17,000 range. On top of that, your equity will be whittled down by the reverse mortgage's variable interest rate. Don't take one of these loans out on a lark. If you've got questions on reverse mortgages, you can obtain free counseling through AARP by calling 800-209-8085.