By now, university and college students are settling into the routine of classes, books, dorms and meal hall. They’ve probably even had a few parties in the early weeks of the new semester. But just as prevalent on campuses in September as long lines at the book store, are the ubiquitous credit card booths, trying to sign up students with bribes of freebies and prize giveaways.
Some marketing campaigns have been considered too aggressive by student associations, and have been banned as a result.
However, from a credit report standpoint, it’s not a bad idea for young Canadians to begin establishing a credit history during university.
“Student credit cards are not inherently evil, but they may amplify bad spending habits,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada. “Understanding the ins and outs of credit cards can help students succeed rather than suffer.”
Consolidated Credit has prepared the following checklist for students to help arm them as they take on the world of student credit cards:
- Shop around – Why do you think credit card companies set up booths on campus? By invading your territory and bringing the cards to you, they’re taking away choice and banking on students not researching for the exact card that meets their needs. Take a look at sites like CreditCards.ca or use the Credit Card Selector Tool from the Financial Consumer Agency of Canada to help you narrow down your choices.
- Know how interest works – Find out what your APR (Annual Percentage Rate) is and know how it’ll affect your balance. For example, if you have an APR of 18 per cent, divide it by 12. That gives you your monthly interest rate, which is 1.5 per cent in this case. If you charge $1000 to your card, it’ll grow by $15 after the first month. Your minimum payment may be something like 2 per cent of your total balance, meaning you’ll have to pay $20. Quick math shows that $15 is going to your creditor and only $5 is going to your balance. Ouch!
- Understand your card is not a crutch – Students don’t have a whole lot of income, and they are probably balancing part-time jobs and student loans to cover costs. Don’t add your credit card to that list, because the interest is much higher and it will cost you a lot more in the long run. Remember to use it only as a means to build credit history. Make only small charges that you can pay off each month.
- Keep track of what you spend – Sometimes credit cards feel like a blank cheque. When you pull cash from your wallet, or withdraw from an ATM, you immediately see how it is affecting your finances. Swiping your credit card, on the other hand, can feel like your purchases are whisking away to Neverland. Download your bank’s app so you can track your credit card balance from your phone and hang onto your receipts.
“Charging money to your credit card is not like borrowing money from your parents,” adds Schwartz. “There are real consequences to your credit card actions that can follow you for a very long time – make sure you know the rules before you play the game.”
If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at for a free debt analysis.