Lindsey Duren, 24, says she has learned her lessons from credit cards. She had her first card at 18 with the intent of building credit, but she doesn't recommend it.
"It's real easy to live beyond your means when you have a credit card," said Ms. Duren, a postgraduate student at Augusta State University. "You think, 'It's just $10, it's $15 there,' and you get your statement and it's $500."
Ms. Duren bought her books for her required science classes with financial aid, but she says some students use credit instead of seeking financial aid, a student loan or getting a part-time job.
This year's class of incoming college freshmen might be the last with access to easy credit.
Federal regulations that go into effect in February mandate that anyone younger than 21 will need a co-signer on a credit card. Young adults also will have to submit financial information that proves they can repay any debt, or complete a certified literacy or financial education course.
The credit laws were tightened to ban abusive practices, but there might be some unexpected problems.
For example, if a parent has a bad credit rating, it will affect a child's ability to get a credit card.
"It's going to be difficult for them, and they're going to have to think about alternate funding," said Laura Fisher, the director of the American Bankers Association Education Foundation.
The parent or co-signer will also be at risk, as they are held in joint liability.
Students will also see fewer pre-approved credit offers in their mail. Adults age 18 to 21 must opt in to receive offers.
The new regulations also restrict affinity cards (cards tied in with university or alumni groups) and require parental approval for any increase of credit lines.
Another new consumer protection provision requires credit card companies to give notice before the beginning of a billing cycle of any rate increase. Any increase will not apply to any outstanding balance, and the consumer has the right to cancel the card and maintain a frozen interest rate on the outstanding balance of canceled cards.
Some students have avoided the credit card path on their own. Brad Hall, 22, a junior at Augusta State, said he uses a debit card so he won't have to deal with the extra bills.
Raquel Bellmer, 20, also a junior at Augusta State, said she's planning on sticking with her debit card as a student and has no plans to get a credit card after graduation.
Reach Sarah Day Owen at (706) 823-3223 or firstname.lastname@example.org.
There are various ways to use credit wisely. Here are some tips from Todd Christensen, the director of education for the National Financial Education Center at Debt Reduction Services Inc., and Laura Fisher, the director of the American Bankers Association Education Foundation:
- Start with a checking or savings account. It's a natural transition to credit cards because you've gained practice keeping track of available funds.
- Develop a spending plan and keep every receipt in an envelope.
- Signing up for a credit card should be a family decision, especially if a parent or other family member is a co-signer.
- Build credit with an in-store card at a department store or auto repair chain, then apply for a major credit card in a year.
- Start with a secured credit card (tied in with a savings account) that comes with a low APR and no annual fees. Start with a low limit, such as $500, and establish parameters for what you'll use the card for. Books, for example, are a good thing to buy with a credit card.
- Never charge lifestyle items, such as junk food or entertainment.
- Read the fine print and make sure you're aware of the APR, if there is an introductory rate, when it ends, what the following APR will be, and what actions can cause the APR to change. - Try to discipline yourself to pay off the balance every month.
- Remember: No credit is better than bad credit.