Crash Course on Credit Cards

Before your first-year university student even unpacks, he or she may be offered two or three credit cards. These days, financial institutions and credit card companies are eager to introduce students to the convenience of plastic. That’s why it’s so important to home school your children in Credit 101 and give them ground rules for using credit before they even leave home. If you don’t, your child may graduate with a backpack full of credit card debt in addition to a degree.

An 18-year-old student with no income can get a credit card without a parent's signature and many do. In 2012, it was found that out of 15,000 Canadian university students surveyed, nine in 10 had a credit card and 26% had two or more cards.

Used responsibly, credit cards can be helpful in an emergency and for establishing a credit history. But you and your child should be clear when and how the card will be used and who will be paying the bill. Think of the tips listed below as a course outline. You are the teacher and your child is the student. Make sure your child makes the grade before obtaining a credit card.

1. Be aware of teaser rates
   Credit card companies sometimes offer low introductory rates to attract students. These rates typically last for only a few months, and then jump to 18 percent or higher. Encourage your child to compare offers before selecting one card.

2. Stick with one credit card
   There is no reason your child needs more than one card. It is easier to pay one bill at the end of each month. Using one credit card to pay off another is a dangerous practice that you don't want your clever offspring to even think about.

3. Pay in full every month
   It's a good idea for your child to develop the habit of paying the balance–in full–every month. Use graphic examples to show how quickly the interest charges grow when you pay only the minimum amount due.

4. Pay on time
   Have your child set up online banking with their financial institution and emphasize the importance of paying the bill a few days early to ensure the payment is processed on time. Late penalties are costly and some companies increase the interest rate after one or two payments are late.

5. Avoid cash advances
   Make sure your child understands that interest is charged on cash advances, starting at the date of withdrawal. Sometimes, the rate of interest is higher on advances than on purchases.

6. Protect your credit history
   Stress the importance of creating a good personal credit history by using a credit card. Late payments or non-payments will affect their ability to rent an apartment, get a job, or buy a car. It takes a long time to repair a damaged credit history.

7. Don't exceed the credit limit
   Penalties are imposed if the credit limit is exceeded. If there is an emergency, your child will be unable to use the credit card. A $2,000 credit limit does not mean a $2,000 monthly balance.

8. Review statements carefully
   Credit card fraud is too common. Tell your child to hold on to the receipts for every purchase and check them off against the statement. Immediately notify the credit card company of any discrepancies or unrecognized purchases.

9. Report a lost or stolen card immediately
   Encourage your child to keep a copy of the credit card number and the financial institution's name and telephone number in a secure place. If a missing card is not reported, your child may be responsible for purchases he or she did not make.

10. Protect personal information
    A credit card is not for sharing with friends, even best friends. Unless your child initiates a telephone or online purchase, the credit card number should not be revealed to anyone.

Don't let your student leave home without a credit card education either from you or one of our financial advisors. Visit one of our branches to learn more.