According to the latest survey from Nellie Mae, a leading provider of student loans, credit card usage among undergraduate students in 2004 was actually 8% less than in 2001. Many people believe this is a good thing. For several years credit card companies were being criticized for targeting college students, enticing them with offers of free gifts and even distributing applications on campuses. A person must be at least 18 years old to qualify for a credit card and as soon as that birthday comes around, the credit card applications start appearing in the mailbox. Most students graduate with over $20,000 of debt from student loans and adding credit card debt to that figure seems unfair; not only to the students, but to the parents. In many cases the parents end up paying the bills in an effort to protect their children’s credit ratings and their future.

Good Debt, Bad Debt

It is practically unavoidable to complete college without using some type of student loan. Student loans are considered good debt. Credit card balances are considered bad debt. Student loans pay for classes, books and supplies. Credit cards pay for pizza. Student loans generally have low interest rates. Credit card interest rates vary. Many student loans do not require payment until after graduation. All credit cards require monthly payments, or late payments will be assessed. Late payments have a negative impact on a person’s credit rating and allow credit card companies to increase interest rates. Despite all this, it is a good idea for a college student to have one (and only one) credit card for emergency purposes, but they should shop for the right one.

Fees, Interest Rates and Finance Charges

Many credit card companies advertise zero percent interest rates for students. It is important to note that these are introductory offers and the rates will go up after a certain period of time. The wise student will compare the interest rate after the introductory offer expires to the rates of other cards in order to get the best deal. All credit card companies charge additional fees and higher interest rates for cash advances, it is important to compare these fees as well, because sometimes emergency cash is needed. Whenever possible, the student should pay the balance off in full every month, in order to avoid finance charges.

Establishing Creditworthiness

A good credit rating is important. Lenders use information obtained from a person’s credit history to judge creditworthiness, or predict the chances that a loan will be repaid on time and in a responsible manner. Most people establish a credit history by applying for and receiving a credit card. In order to establish a history of creditworthiness, the bills must be paid in a timely manner. In order to avoid large credit card debt caused by finance charges, interest rates and late fees, the credit card balance should be paid in full on a monthly basis whenever possible. Only making minimum monthly payments on even a $1500 balance, which is the average carried balance among freshman according to the Nellie Mae survey, means it will take years to bring the balance down to zero.