College students are prime targets for credit card companies, which set up tables on campus and entice students to sign up for new cards with promises of free T-shirts or other goodies. Unfortunately, many students eagerly apply for credit and use it unwisely.

Students double their credit card debt and triple the number of cards in their wallets between the time they arrive on campus and graduation, Nellie Mae found. Another scary finding: by the time college students reach their senior year, 31 percent carry a balance of $3,000 to $7,000.

• Most college students get their first credit card by the fall of their freshman year.
• More than 80 percent of college students have at least one credit card.
• College freshmen who have credit cards tend to double their debt by their senior year.

Piling up debt during college years is alarmingly easy. In fact, credit card companies will often use persuasive marketing techniques to get students to open accounts. Once students have credit cards in hand, the temptation is so great that many end up graduating with not only a diploma, but significant consumer debt.

That doesn’t mean college students should avoid using credit cards entirely. If used properly, credit cards can be beneficial in establishing a positive credit history and in providing aid in emergency situations.

So what’s the message here? Don’t allow your child to get a credit card? Sorry Mom and Dad, once your kid turns 18, he or she can get a card without your permission. However, if the card is handled properly, your student will be glad to have a credit history upon graduation. The “Motley Fool” Web site – a financial education site – writes:

“Making the leap from college to the real world is going to be a whole lot tougher without a credit history. Without a credit card, you can’t rent a car or get a good car insurance policy. You could get turned down for an apartment when a potential landlord checks your credit history and finds nothing there. Or you could be asked to shell out an enormous deposit before moving in. Once you graduate, getting a credit card will be more difficult. Let’s say a pre-approved credit card offer does comes your way. There’s a good chance you’ll be turned down. The reason? The lack of a revolving credit account on your credit report.”

Martin suggests allowing your high school senior to sign up for a credit card so you can closely monitor how he uses it and be on hand to discuss managing credit.

Student Credit Cards
A college freshman is offered eight credit cards in his or her first semester. The average graduating senior has six cards in his or her name. Martin says that students only need one credit card. Yep, that’s it, one.

Most students will receive offers for “student credit cards.” These are simply cards that companies market specifically to students. The cards typically have lower credit lines – $500 to $1,000 – and higher interest rates. Motley Fool found that the average rate on these cards range from 10 percent to 19.8 percent.

“Those rates are OK – not as good as adults with good credit, not as bad as people who have already mishandled credit. All of the ones at the low end of the scale are variable rate cards, so you can expect them to rise,” the Web site reports.

Just as you would with any credit card, look for the lowest interest rate possible, a low or no fee card and a 25-day grace period. Keep the card limit low, even if offered a higher line of credit.

Prepaid cards
Parents who are concerned about their college student falling into debt can consider giving their child a pre-paid card. This safety net allows parents to set a dollar amount on the card so nobody has to worry about the student driving up a large balance.

Never co-sign on an account
Whatever you do, however, never ever co-sign on a student’s account. You don’t want your student’s financial mistakes appearing on your credit report.

Twenty-seven percent of students use a credit card to help finance their education. These students wind up with significantly more credit card debt when they graduate. The Nellie Mae study found that students who charged tuition and other related expenses left school with a credit card balance of $3,400. This is much higher than the average graduate’s balance of $1,600.

Martin says paying for school with credit cards should be a last resort. Unlike student loans, you have to begin paying back credit cards immediately and you face a much higher interest rate.

The impact of debt
How does all of this debt impact your student? The biggest concern is how the debt and its management affect the credit report and the credit rating.

Nellie Mae found that over half of all graduates with debt feel burdened by that debt. And, for the first time, the study discovered “the probability of owning a home decreases by a small amount as debt levels increase. Family structure, age and income remain the most important determinants of home ownership, but an additional $5,000 of debt reduces the probability of owning a home by about one percent.”

Make sure your student pays attention to credit card fees. Some credit cards that offer big promotions also charge annual fees, so they need to weigh the value of the offer vs. the cost of the card. No-fee or low-fee cards can be researched at www.cardweb.com.

Another important aspect of your student’s credit card management is to keep a low credit line, which limits the amount of credit they have access to and helps to remove the temptation to overspend. Should they receive a congratulatory letter raising their credit limit, advise them to call the credit card issuer and decline the offer.

One more thing you need to notice is that every card have hidden terms, so Beware of Hidden Terms on Credit Card Contracts.

Cash Back Credit Cards

A good example of this practice are cash back credit cards. These cards offer to reimburse a percentage of the money you spend on certain services and goods. What’s the catch? It’s simple: The stores that adhere to these programs charge significantly higher prices than other stores. And the program, as stated in the contract, only works when you purchase at those stores. Thus, though you may think that you are getting money back by purchasing there, you are actually overpaying for the products or services you purchase.

Reward Programs

There are an infinite variety of reward programs attached to credit cards. You can obtain miles that you can exchange for flight tickets, points you can exchange for products, cinema or theater tickets, discounts on goods and services, etc. However, in many cases you have only a limited time to use those points or miles so you actually never get to acquire the amount of miles or points needed to obtain an important reward.

0% APR Promotional Period

This is one of the most appealing offers that credit cards feature in order to attract customers. The idea is that for a certain period of time, you are not charged interests for financing the credit card balance. It’s just like getting a loan for free, till the promotional period is over, you are not charged for the money you owe the credit card issuer.

The stipulations that turn this clause useless in some cases are diverse. For example, there are some credit cards that only offer you a 0% promotional period if you spend an important amount of money on goods and services with your credit card on a monthly basis. There are others that only offer 0% APR financing on the part of the balance that corresponds to new purchases and not to transferred balances.

No Fees, No Costs

No fee promotions are also tricky and have to be analyzed carefully as they may not imply what it seems. No fees for balance transfers may only apply up to certain amount of money or you may not combine it with a 0% APR promotional period. Moreover there are also some cases in which you need to spend certain amount in order for the fee to be waived. As you can see, nothing comes at no cost, thus, it is wise to read the credit card contract in detail before signing so as to see what you are really getting into.

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