Help college-age children avoid common pitfalls of credit cards

By STEVE ROSEN
THE KANSAS CITY STAR

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My oldest son received a college graduation gift of sorts in May from Citibank -- a shiny, silver credit card with the activation sticker attached.

One problem: He neither wanted nor asked for it.

A 20-something not craving a piece of plastic? Crazy, isn't it? When my son headed to college four years ago, he had been coached not to sign up for any credit card solicitations, especially those coming from people hawking "free" T-shirts, pizzas, water bottles or who knows what else. He said he never knowingly strayed -- the only credit card he carries in his wallet comes from his bank.

So when Citibank's letter arrived a couple of weeks ago, my wife and I were so angry that asbestos mitts couldn't have put out the flames as we passed that card back and forth. If only the bank could have witnessed our wrath.

Our son wanted to know what to do with the card and whether destroying it might harm the credit record he's trying so carefully to build up.

He's certainly not alone with these types of questions.

Credit cards are a hot-button issue in many households with college-age children, many of whom will have racked up a big debt by the time they graduate. The average undergraduate owes more than $2,000 on credit cards, according to 2004 data from Sallie Mae, while the average graduate student owes more than $8,600, according to 2006 data. Those numbers -- the latest available -- are almost certainly higher today.

To address some of the questions that came up in our house, I turned to Ben Woolsey, director of marketing at CreditCards.com, an online resource site that monitors the credit card industry. He offered straightforward tips that helped us and could help your student.

As in our case, if your student receives a credit card that he or she did not apply for and does not want, Woolsey said the safest thing to do is to destroy the card and shred the letter.

That should eliminate any worry of identity thieves snagging personal account information. Don't toss the card in your sock drawer and forget about it. If it falls into the wrong hands, there's always a chance the account could be activated, even though it takes a call from your home phone.

What about the impact on your student's credit history? Destroying the card shouldn't adversely affect a credit rating, Woolsey said. However, because banks are generally prohibited from mailing unsolicited credit cards with activation stickers, Woolsey recommended checking with the issuer to confirm that a new account is not on the books.

As for the dozens of prequalified offers mass mailed year-round, Woolsey said, "there is no negative credit score effect" of running these through the shredder.

On the other hand, he said, the best way for a college student to build up credit history is simply to get a credit card and use it responsibly.

If your son or daughter is ready for a credit card -- those younger than 18 must have the consent of a parent or legal guardian -- here are some strategies from Woolsey on wisely choosing and using plastic:

Shop around. There are all kinds of credit cards and rules. Compare offers from issuers at Web sites such as www.creditcards.com. Of course, the key areas are interest rates, payment terms and late fees.

Set limits. Make sure your son or daughter understands the advantages and disadvantages of using credit cards, whether for emergencies or essentials. Agree on the definition of an essential item. My rule of thumb: Don't pull out the plastic to pay for any product that will be consumed before the monthly statement arrives (for example, pizza).

Insist that the balance be paid in full every month, and require that your student save all receipts and monthly statements for you to review. If a bill is not paid on time, work out a strategy for covering the balance in a timely manner. Many banks send out text or e-mail alerts when an account is past due.

Consider secured cards. These cards are tied to a checking account, so if a monthly payment is missed, the issuer automatically debits the account. If one of the goals of holding a secured card is to establish credit history, be sure the issuing bank is reporting payment records to the credit bureaus, said Woolsey.

Avoid campus solicitors. In exchange for that free gift, students often sign up for a product that's crummy after the introductory teaser rates disappear.

Colleges go to great lengths to preach about and protect students from the dangers of alcohol and drugs. But when it comes to credit cards and the potential financial problems that come from putting plastic in the hands of inexperienced teens, most students are pretty much on their own.

"You can't really count on the university to be on your side," said Woolsey. That's a problem.