My 18-year-old son returned home from university at Thanksgiving with a credit card. I was surprised he even qualified for a card, given he’s an unemployed, first-year student. But apparently they were giving out free frosh-week T-shirts on campus to anyone who signed up for a card and he and all his friends got both the shirts and cards.
Now don’t get me wrong; my son is a very astute young man. He’s responsibly managed his own bank account and debit card for years. But I quickly realized when it came to credit cards there were a few things he was unaware of.
A lack of understanding about credit is a common problem, not only among teens. It’s one of the reasons the Financial Consumer Agency of Canada has declared November to be Financial Literacy Month. It’s also why a number of financial institutions, including Sun Life, sponsor Credit Education Week events across the country to help promote sound money management.
So, in honour of Credit Education Week, I share the following five credit card tips I recently gave my son:
1. Check interest rates
Credit cards charge varying interest rates. In my son’s case, he discovered he could obtain a credit card through his own bank that provided a considerably lower rate than the one he’d signed up for on campus.
2. Pay off credit cards in full each month
Don’t be confused by the fact that credit card statements only require a “minimum payment.” You will be charged interest on any outstanding balance. It’s far better for students to apply for a student loan with a lower interest rate than to carry debt on credit cards.
3. Don’t make late payments
Even if you’re only a day late, most credit cards will charge interest on all your purchases from the day you bought them, not from the day your payment was due. As a result, you may end up being charged more interest than you’d expect. Also, late payments can have a negative impact on your credit score. To prevent this, my son decided to set up a direct debit from his bank account to pay off his credit card bill automatically in full each month.
4. Toss those credit card cheques
Credit card companies often mail out cheques you can use to draw funds. But, unlike regular purchases charged on a credit card, these cheques are considered to be cash withdrawals, so interest kicks in right away. You’re far better off to use regular bank cheques that withdraw funds directly from your account.
5. Don’t apply for multiple cards
Along with the fact that it’s far easier not to have to keep track of numerous cards with varying due dates, having too many cards may tempt you to spend more than you can afford. It can also hurt your credit score as credit bureaus consider the amount of available credit you have as an opportunity for debt and, as a result, may consider you to be a higher credit risk.
Despite all these warnings, I’m glad my son has obtained a credit card. Using it responsibly can have a positive impact on his credit rating, which will be helpful someday when he’s looking to get a loan. Plus, now that he’s living away from home, there are bound to be multiple occasions when it will come in handy. In fact, I’m looking forward to his using it to book his next trip home!