Students who enter college also begin a lifelong journey with credit and debit card use. Here is how to do it safely
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If you are taking debit or credit cards to college, following some smart tips can make the difference between a few extra pizzas and a pile of bills.
From the best deals on bank accounts to financial security in the dorm, here are eight things you need to know:
1. You can save big bucks by shopping banks
Do not automatically apply for a campus debit card. Instead, shop around for a bank account and debit card first to compare costs.
“A lot of these campus debit cards come loaded with fees — even ‘per transaction’ fees,” says Joe Ridout, consumer services manager with Consumer Action. “Just because the school promotes a card doesn’t mean that card is the best one for you.”
Students who are targeted with credit card marketing from their colleges might not know that their colleges are really the ones benefiting from issuers. In 2015, the Consumer Financial Protection Bureau investigated 25 colleges that had the largest agreements with credit card issuers to see if they were in violation of consumer protection laws. The CFPB then sent letters to 17 of those schools, requesting that they disclose the details of their school-sponsored credit card agreements.
The worry is students might not look at rival issuers if their college is promoting a certain card.
“Shop around and don’t take it on faith,” says Chris Lindstrom, higher education program director for US PIRG, which has criticized campus debit card fees. For as many deals [as] we found [that] were good, we found campuses where students could have gotten a better deal down the street.”
2. You have a choice with overdraft fees
Normally, your debit card will be refused if the purchase takes your account below $0. But if you give the bank permission to charge (called ‘opting in’) overdraft fees, the debit card will keep working even after you are out of money. And you will get charged a fee — often about $35 — every time you use the card, says Chi Chi Wu, staff attorney with the National Consumer Law Center.
“With debit cards, the biggest problem is the overdraft fees,” Wu says.
People in their late teens through early 30s make up more than a third of “heavy overdraft users,” according to a 2015 report from the Pew Charitable Trusts. The “overdraft users” are those who pay $100 or more in bank fees in a year from overdrawing their bank accounts.
Banks and financial institutions need your written consent in advance before they can allow your account to dip below $0 and start charging overdraft fees. Wu suggests declining that option, or revoking your consent if you have agreed to it in the past.
3. It is easier than ever to track purchases and receipts
If you use your debit card daily, it is even more important to know exactly how much money you have in your account. Three free options for keeping tabs on your balance include:
- Apps and online offerings from your bank or credit union.
- Websites such as Mint.com that allow you to integrate your bank information and track finances.
- Text alerts available from your bank or credit union.
No matter which option you choose, recognize that not all purchases are deducted from your account the minute you make them. Some may take several days, or even a week, to clear, says Michelle Dosher, managing editor for the consumer education department of the Credit Union National Association. It’s best to make it a daily habit to check your bank account online or via an app to make sure you’re not overspending and also to check for any fraudulent withdrawals.
4. You can hurt your parents’ credit
If you run up a balance you cannot pay on your parents’ credit card, you are potentially hurting their credit scores, says Dosher: “It’s your parent’s credit that’s on the line.”
Want to avoid problems? Have a talk with Mom or Dad to spell out exactly what the shared card is meant to cover, says Dosher. If they use fuzzy terms like “for emergencies,” get specific and have them spell out exactly what constitutes a card-worthy emergency.
If you can’t keep your spending under control, your parent might be better of removing you from the card and getting a prepaid card instead, where a specified amount of money is loaded on the card.
5. You have free access to your credit reports and scores
At least once a year, pull all three of your credit reports and make sure everything is accurate, says Anthony Harrison, principal at Sprauve-Harrison Communications. If you’ve never had a credit card before, the likelihood of you even having a credit report is small. But if you’ve got a student loan, odds are that’s in your report. You can get your credit score for free from mycreditcards.com or via Discovers’ Credit Scorecard. Know that if you don’t have a credit report, you won’t have a credit score.
You are entitled to pull your credit reports from each of the big three credit bureaus — Equifax, Experian and TransUnion — for free each year through AnnualCreditReport.com.
Harrison says the keys to building a good credit score are:
- Paying on time
- Keeping your monthly usage to 20 percent of your available credit line or below
- Paying off the entire card balance every month
“You don’t need multiple credit cards to have a good score,” he says. Instead, Sprauve suggests getting one good, all-purpose card, using it and paying it off judiciously.
6. You probably can get a credit card, but maybe you’re not ready for one
Years ago, enrollment in college almost guaranteed you a credit card. “The Credit CARD Act changed that,” says Dosher, referring to federal credit card legislation signed into law in 2009.
Now, if you are under 21 and want a card, you either need verified income (enough to pay the bill) or a co-signer. “Credit card companies are allowed to consider grants and loans” as income, as long as a student is receiving an amount greater than the tuition bill, says Wu.
There’s a lot of marketing of ‘student cards,’ and then there’s what’s good for students. And they’re not necessarily the same thing.
|— Joe Ridout|
But even if your loans and grants cover more than tuition, that is not exactly disposable income. You still need to do other things with the money. Such as buy books. And eat. So while you may qualify, it is often smart to stay out of the credit card arena until you have actual disposable income.
7. ‘Plain vanilla’ cards are preferable
If you do have some disposable income, opt for a general use credit card with no annual fee that has good terms and a low interest rate, says Ridout. Remain skeptical of “student cards,” he says. “There’s a lot of marketing of ‘student cards,‘ and then there’s what’s good for students. And they’re not necessarily the same thing,” Ridout says.
Instead, shop for the card that best suits you, he says. That probably means a general-use card (not a retail store card), with a low interest rate and no annual fee. “For a student, there’s absolutely no reason to be paying an annual fee,” Ridout says.
8. Limit potential ID theft
In a dorm, you share a communal environment with little space and less privacy. Safeguard your cash, debit cards, credit cards and personal financial information. Also, use private devices and access banking information on secure networks.
Never write down PINs or passwords. Force yourself to log in to financial sites each time rather than saving passwords or logins. You do not want your bank or card pages to pop up if someone trolls through your phone or surfs on your computer. And devise a safe hiding place for your debit or credit card.
“You just need to recognize that it is money,” says Ira Rheingold, executive director and general counsel of the National Association of Consumer Advocates.