Credit Card Smarts

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Credit Card Smarts

Take Charge of Your Cards
Imagine being 30 years old and still paying off a slice of pizza you bought when you were in college. It may sound
crazy, but problems with credit card debt can lead to this scenario.
Learning how to use credit cards responsibly now can save you from having to dig yourself out of debt after you
graduate. It also helps prevent you from having a bad credit history in the future that will affect other things you
want to do.
You know that the loans you take out for college need to be paid back once you graduate. If you add a large monthly
credit card bill (avoid the temptation to charge your tuition!) to that amount, you may find yourself in a very difficult
situation financially.
Credit Cards and College Students
Credit cards are an indisputable fact of life and there are many good reasons to have one. They give you protection
for your purchases, allow you to shop online, and provide a cushion in case of emergencies. The secret is to use the
credit card as a tool to help you when you need it, but not to excess. Discuss with your family what kind of expenses
it is reasonable to charge.
Credit card abuse has become such a problem that, in February 2010, the federal government recognized the
importance of protecting college students from the consequences of misusing credit cards. They enacted legislation
changing how credit card companies can do business with students. Although the law provides some protection, it’s
still up to you to manage credit wisely.
The law bans credit card companies from issuing cards to people under the age of 18. If you’re under 21 years old,
you need an adult cosigner to get a card, unless you can prove that you have the financial means to pay your bill.
Other provisions in the law limit some of the fees credit card companies can charge — and, in response, the
companies are raising interest rates to avoid losing income. Anyone without an established credit history may face
the highest interest rates — and that group typically includes students.
Credit Card Offers on Campus
If you don't already have a card, you’ll have plenty of opportunities to apply for one once you hit campus. It
shouldn’t surprise you that the companies are allowed on campus; many colleges earn money by permitting this
practice and from creating affinity cards — credit cards that include the name of your college. The law requires that
educational institutions and credit card companies let you know about these agreements, but the messages may be
subtle. Learn about fees and interest rates to protect yourself.
Carrying a Balance Can Be Very Expensive
Credit cards are actually high-interest loans in disguise. Companies may lend you money, but they get it all back and
a lot more by charging you fees. Finance charges on the unpaid portion of your bill can be as much as 25 percent
each month, and cash-advance fees have even higher interest rates. Annual fees just to carry the card in your wallet
range from $20 to $100; there are also late-payment fees, typically $25-$50.
Not paying off the entire amount in your account each month can lead to big finance charges. Take the story of Joe:
Joe's average unpaid credit card bill during a year is $500, and his finance charge is 20 percent — so he has to pay
$100 in interest for the year. He pays a $20 annual fee per year, plus a $25 late fee one month (he was up late
studying and forgot to mail in his check). After a year, Joe ends up owing $145 in interest and fees to his credit card
company, and he still hasn't paid for any of his actual purchases!
Your Credit Report Matters
Your college years are an important time to build the good credit history you need after you graduate. You need to
provide a credit report to apply for an apartment or finance a large purchase, such as a car. Employers often review
Name: ________________________________________________________                            Period: _____

a credit report when they hire and evaluate employees. Problems with credit cards, such as late or missed payments,
stay in your credit report for seven years.

Be Credit Smart
When you sign up for a credit card, you are responsible for paying the bills. Follow these rules of credit management
to lead a financially healthy life:

        1.   Consider using a debit card instead of a credit card. Money is deducted directly from your checking
             account, so you can't spend more than you actually have.
        2. Read all application materials carefully — especially the fine print. What happens after the "teaser rate"
           expires? What happens to your interest rate if you're late with a payment or fail to make a payment?
           What's the interest rate for a cash advance?
        3. Pay bills promptly to keep finance and other charges to a minimum; pay the balance off if you can.
        4. Use credit only if you're certain you are able to repay the debt.
        5. Avoid impulse shopping on your credit card.
        6. Save your credit card for a money emergency.

Answer the following questions about the article above.
   1.    Explain the changes in the laws that affect college students.

   2. Why do colleges allow credit card companies on campus?

   3. How much are typical late fees on a credit card?

   4. Why might a Debit Card be a better option than a Credit Card?

   5. What three things might you look for in the fine print of a credit application?

   6. Write a couple sentence summary of the author’s overall message from this article.

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