As students go away to college, many for the first time, their annual questions regarding having a credit card begin. Why should they consider a credit card? And what do both students and their parents need to know before signing on the dotted line?
Here are a few tips.
The CARD Act means most incoming college freshmen need an adult co-signer to open a credit card account.
It’s recommended that parents walk through the process of card selection with their students not only to guide through the application, but also so the son or daughter understands that their card can influence their parent’s credit history as well.
Also, a basic understanding of some credit card vocabulary is something every student should possess before leaving for college.
- Credit Bureau refers to the three companies – TransUnion, Equifax and Experian – that calculate your credit score.
- Credit Limit refers to the amount of money that can be charged to a credit card account. The size of a credit limit, and how much of it has been borrowed, have a large influence on consumer credit scores.
- Credit History refers to record of a person’s history of using debt. Lenders, including credit card companies, use credit histories to decide whether to provide customers with credit, and on what terms. Landlords, insurance companies and other businesses can purchase these reports to analyze the way you’ve been dealing with your finances, which is why establishing a positive credit history is so important.
What records are kept in your credit history, for how long and how they may be used are regulated by the Fair Credit Reporting Act.
Students should be aware of the interest rate and minimum monthly payments on any card they open as well. These are items that must be disclosed at the time of application.
Understanding some of these basics will not only help students begin building a positive credit history, but will also help parents trust their students to have a credit card as well.