I think we all make mistakes with credit cards at one point or another.  I made mine in college, and paid for those mistakes for years.  The trick is to learn from those mistakes—or better yet, learn from other people’s mistakes and never make them yourself.  Here’s a list of what I think are the 4 biggest mistakes.

1. Taking what the credit card companies give you.

I don’t understand why people just take what the credit card companies offer them.  Interest rate is going up?  Okay.  Your credit limit is being lowered?  That’s fine.  This attitude baffles me.  You, yes YOU, can negotiate with credit card companies.  I know this from experience on both sides of the issue—both from working for Household Bank and later HSBC, and from being a consumer myself.  Call the credit card companies and talk with them about better rates.  The credit card industry is a business, and like any business they want to keep their customers.  It’s cheaper for them to give you a better rate than it is for them to find a new customer to replace you.  Advertizing is expensive.

2. Paying late because you forgot.

This is something we’ve all done at one time or another I think.  You get your statement, you open it, and you see the due date is a couple weeks out, so you set it aside intending to mail the payment Friday after you get paid.  Then Friday comes and goes and that bill you set aside is out of sight, out of mind.  A week later you’re opening up a new bill and you go to set it aside and what do you find?  The bill that you set aside 2 weeks ago that’s now late.  It’s a slippery slope; because once you start paying late you open the door to penalty fees and rate changes.  Find an organizational system that works for you.  One thing that works for me is having a file box with 31 folders in it.  When I get a bill that I am not going to pay immediately I decide when I am going to pay it and put it in the appropriate file folder.  I check the folders each day to make sure there isn’t anything there that I forgot about.  This system works for me, but you might be different.  Either way, find fail safe that will keep you from paying a bill late just because you forgot about it.

3. Not paying your balances in full each month.

Hopefully it’s not too late, but if you’re not already in the situation where you are carrying balances on your cards, don’t!  The temptation can be so great.  You know you have the money to afford something if you save up for it, so you justify putting a large expense on your credit cards promising yourself you’ll pay it off quickly.  But like the slippery slope of paying late, this is a slippery slope coated in Teflon and you’re wearing silk.  Use your cards responsibly, don’t put yourself in a situation where you’re carrying a balance and making minimum payments.  Before you know it you’ll look at the new section on your credit card statement that tells you how long it will take you to pay the card off and you’ll be sick to your stomach.

4.Last but not least, denial.

Just like with alcoholism or gambling problems, or any issue really, you first have to acknowledge that you have a problem.  If you’re deep in credit card debt and unwilling to admit to yourself that you have an issue, you’ll never be able to get out of the pit of debt.  You need to honestly evaluate your credit card situation and figure out what needs to change.  Are you in massive debt because you spend money on credit cards because the cost is less real to you because you’re not physically handing someone cash?  Are you addicted to the convenience of cards?  Are you just living beyond your means because you want to keep up with the Joneses or you just have to have the latest gadget?  Whatever the reason is, you have to first admit you have a problem, identify the underlying cause, and work out a solution.  If this is something you need help with, give us a call here at NCS, we can help.

There’s been a lot of talk in the news today and over the weekend about Obama meeting with the heads of the largest banks today.  He’s having a little sit down in Washington with over a dozen bank heads from Bank of New York Mellon Corp., Bank of America Corp., U.S. Bancorp, JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs, Citigroup, etc, to supposedly read them the riot act about lending to small and medium size businesses.

The main thrust, which he alluded to over the weekend on television when he called the heads of the banks (the people he called “fat cats” on national television), is that these banks largely created the current economic crisis, were bailed out with hundreds of billions of dollars in tax payer money, got back on their feet, paid out huge bonus to their executives, but now aren’t stepping up to the plate to lend money again, helping put the 10% of unemployed Americans back to work.  He’s also more than a little peeved that these banks aren’t jumping on the bandwagon to support the Consumer Financial Protection Agency that cleared the House last week, but are instead spending millions lobbying against it.  Banks on the other hand argue that Obama is greatly oversimplifying the issues at hand, that it’s more complicated than just saying “okay, we’re going to lend money again”, and that the tighter lending standards are necessary to keep the country from going into another economic whirlpool of defaulted loans.

Michael Steele, the Chairman of the Republic Party, agreed with the bankers that returning to the loose lending practices of the past would be disastrous.  He instead suggested an alternative to irresponsible lending by saying “Let’s eliminate the capital gains tax, reduce the unemployment tax and give some incentives for small businesses.”

So who’s right?  Do the “fat cat bankers” need to open the floodgates of cash?  Do we need less regulation for the banking industry so they can make their own corrections?  Should we give small and medium size business owners a break on taxes and instead incentivize them?  In my opinion it’s a little of all of the above.  Let’s hope these talks bring some cooperation rather than the typical blame game, because that’s the only thing that’s going to benefit the common man.

So here’s my open letter to bank executives, Obama, and everyone else with a say in this:

To whom it may concern,

Please relax lending standards, but do it responsibly.  There is middle ground between the loose and fast practices of the early ‘90s and the almost complete lack of lending now, find that middle ground for the sake of the 10% of the country out of work, the hundreds of thousands of people who have applied for mortgage modifications and have been denied, the business owners working hard to turn a profit and create and maintain jobs who desperately need funds to grow, and everyone else who is just fine right now, but won’t be if the economy doesn’t turn around.  Obama, please stop playing the blame game and focus on responsible solutions to unemployment and practical banking regulation.  Congress, for the love of all that’s good and decent, fix the mess you created with the Credit Card Reform Act.  By giving in to lobbyists you’ve created a situation where the banks are killing us with fees and interest rate hikes while destroying our credit with lower credit limits before the new rules go into effect next year.

There’s a way out of this economic mess, work together to find it for the good of everyone rather than covering yourselves.  Be unselfish for once.  Turn this all around before it’s too late.

Regards,

Wil Chiera

“Debt consolidation.” It has such an alluring ring to it. It creates this fantasy that you can wrap up all your debts into one attractive, low interest package, and everything will be hunky dory with your debt. Sadly, the easy quick fixes are often rather bad for you, financially and credit worthiness-wise.
This glorious idea of an easy fix to being thousands of dollars in debt has been fertile soil (fertile with manure) for an entire industry with fabulous claims of lower monthly payments, low interest rates, and zero hassle.

You know what they say about something being too good to be true though…

So before you jump feet first into debt consolidation, be sure you’re aware of a few things.

• Debt consolidation companies are not nonprofit organizations, they won’t improve your credit, and they won’t do anything you can’t do yourself. Here’s the deal, from an industry insider: you gather all your paperwork and send it to them, they tell you how much to pay them each month, then they’re supposed to negotiate lower payments and interest with your creditors and make the payments for you. The reality is they are notorious for paying your bills late, destroying your credit, they take 10-20% of what you pay them each month for “administrative costs” (it’s not profit, they’re a nonprofit organization, remember), and they once again can’t get better rates than you can by spending some time on the phone with your creditors. Some of the worst of them will even purposely let your debts charge off so they can negotiate a better settlement on your debts once they’re turned over to a collection company, allowing them to take a portion of the money they “save” you. Believe me, with the hit your credit will take by doing that, and the resulting higher interest rates and fees you’ll have on everything after that due to your abysmal credit, you’re not saving anything.
• So what if you’re not going with a debt consolidation company, but are instead getting a debt consolidation loan? Well, that is a much better option, but it’s still not a good option. First of all, chances are good you’ve got some dings on your credit already if you’re looking for a consolidation loan, so the chances of you getting a loan are pretty slim, and if you do get the loan, your interest rate isn’t going to be better than the cards you’re paying off. So you get the convenience of one payment, but no monetary savings, and that’s what this is supposed to be about, saving money, not just convenience. So don’t believe the promises of easy money, it’s just a lure to get you in the door like a wide mouth bass.
• What about flipping your debt from card to card chasing the no interest balance transfers? Well, it’s bad for your credit, the banks will catch on and cancel the cards, it’s illegal, and there is the little thing of our failing economy and the fact that those zero percent interest cards just aren’t available anymore. This solution is so… 2007. Reality caught up to this plan about a year ago.

So what should you do?

• Get a home equity loan. This will have a low interest rate and the interest will be tax deductible. You’ll have the up-front costs of origination fees, insurance, and an appraisal. Warning though, this isn’t as easy as it once was before the mortgage crisis, but if you’re lucky enough to still have equity after the freefall of housing prices, this is an excellent option.
• Negotiate with your creditors on your own. Remember the credit card industry is “losing” tons of money right now because the impending enforcement of the credit card reform act, so they’re probably going to be more willing to bend to keep the paying customers they still have. This gives you leverage. They want you paying, and paying them, not defaulting or taking your business to another bank.
• Refinance your home, cashing out your equity. This is different from a home equity loan and will give you lower monthly payments because you’ll probably get a longer loan term than a standard equity loan. Keep in mind though; this is going to cost you more in the long run because you’re extending the length of your mortgage without lowering the price of the home. If you can get your credit cards debts paid off though, and then apply all or a portion of what you were paying the credit cards companies toward your mortgage, you can minimize or overcome the damage though.
• If you have somehow weathered this without destroying your credit already, a personal loan from a credit union might be an option. You’ll get interest rates in the 10-15% range most likely, but that’s still better than the 24.99-29.99% you’ll be paying on credit cards these days.
• If the situation is truly dire, you might also want to consult with an attorney. It’s sad, but true, that is some situations bankruptcy might be your best option. I strongly advise seeking legal advice before going down this route though.
• Last, but certainly not least, there’s the hardest, yet easiest option. Living within your means. Paying off your debts can be accomplished by putting more money toward them each month. That might mean cutting back on eating out, getting rid of the 300 channels of cable since you probably only watch 3 of them anyway, maybe carpooling to save gas, get a second job, etc. Make a personal budget, find where you can cut back, and put that money toward the bills. This doesn’t require loans or lawyers or anything else because it easy, but living within your means can be so hard. It takes self control and determination, but the rewards are great.

Part 2 of 2

How to protect yourself.

• Keep in mind the interest rate increases won’t affect you if you’re not carrying large balances.  Going from 9.99% to 14.99% isn’t going to really impact your wallet if you’re already living within your means rather than living on credit.
  • Be aware of the fine print on your credit cards.  If you know that the new card with the 0% introductory rate for the first 12 months is going to instantly jump to 24.99% if you’re even a day late during that time frame, you’ll probably be a little more careful about making sure the payment is sent on time.
  • Pick cards with lower long term rates rather than teaser rates that expire and then go up.  The longer you have a card the better it is for your credit score, so you want cards that will still be useful to you 2 or 3 years down the road.
  • Read the mail you get from your credit card issuers.  I too have been guilty in the past of just finding the payment due and ignoring the rest of the information stuffed in the envelope, and I’ve been burned by it.  The banks are notorious for slipping in information about rate changes or changes in your terms of service.  Stay informed, that way you’ll be able to change your spending habits before the card goes to 99.99% next month.
  • Cash advances…  just don’t do it.  The interest charged on cash advances is always significantly higher than the rate charged on regular purchases, and to add insult to injury, when you pay your bill each month the credit card companies are going to apply your payment to your normal purchases, not the higher interest cash advance balance, first.
  • This one may be obvious, but PAY ON TIME.  Don’t count on the postal service to get the payment to the bank in a timely manner, send the payment early to be safe.  Remember that until the new laws are being enforced you’re still subject to universal default, so that one late payment could cause the interest rates to go up on all your cards.
  • Along with the obvious pay on time, there’s also stay under your credit limit.  Over limit fees and the increased interest rates are only getting worse and worse, so do your best to avoid them completely.
  • Pay in full to avoid interest.  Credit cards should be used as a convenience, not a replacement for income, so if you’re spending within your means this should be easy to do.  If you’re not living within your means, it’s time to draw up a reasonable budget and figure out what it’s going to take to get your finances in check.
  • If you find yourself using your cards more than you should just to make ends meet, don’t be afraid to ask for help.  Feel free to give our experts a call at 1-888-WHY-FICO.  We can give you the unbiased advice based on our experience that will help you get on track.

Part 1 of 2

I’ve spoken a lot recently about what credit card issuers are doing before the Credit Card Reform Act goes into effect next February. They’re justifying their practices by saying that their revenues are suffering with the ever increasing unemployment and default rates. Sadly their solution is to penalize the paying customers. Here’s a list of specific things to watch out for in handy “10 things to watch out for” format.

• Increasing interest rates. The phrase of the day with the card issuers seems to be “any time any reason” price changes. This isn’t just happening to sub-prime customers either. One of the major banks just raised the interest rate on their low risk prime cards to 29.99%. Interest rates like this have been ridiculous in the past even on sub-prime cards. Rates for sub-prime cards are even worse.

• Penalty rates are going up. Those are the rates that are put in place if you’re late, go over your limit, etc.

• “Unprofitable” accounts are being shut down or getting their limits reduced. In other words, people that pay their cards off each month, denying the card issuers interest and penalty fees, are being closed down. The issuers want to keep the people that carry balances and are late here and there.

• Cash advance and balance transfer fees are skyrocketing to all time highs. The days of no cost, 0% interest balance transfers are long gone, and those “convenience” checks are going to significantly increase the real cost of your purchases.

• Annual fees are being added and increased. Last year less than 20% of credit cards had annual fees, but it’s predicted that by February nearly all credit cards from the big banks will have them. The cards that already had annual fees are seeing them doubled, tripled, even quadrupled.

• Fixed rates are being changed to variable rates. In the past with fixed rates meant that if the prime interest rate went up your rates remained the same, decreasing the profits of the banks, but now if the historically low prime interest rate goes up (which it will since it can’t really get any lower), your rate will go up. If prime is 3% and your rate is prime +24.99%, and prime goes to 6% your rate goes to 27.99% instead of staying at 24.99%. Oh, and the best part, there’s no provision for the rates to go back down. So if prime goes back to 3%, your interest rate doesn’t go back to 24.99%.

• The banks are changing the terms of their special fees to make them all inclusive. For example, banks charge a special fee for “international transactions” in other forms of currency, but they’re changing the terms so those fees apply even when the transaction is still in American greenbacks.

• They’re making rewards an endangered species. Cash back rewards are being lowered or eliminated while things like airline miles are getting tougher restrictions making it harder, if not impossible, for people to use them.

• The banks are getting creative and creating new fees in addition to the old ones. Not using your card? Here’s an inactivity fee. Not using it enough? Have a low activity fee.

• The banks are closing cards with no notice. That’s means you might not even know until you go to use the card and your transaction is embarrassingly declined.

I’ll follow this up tomorrow with some suggestions on how to protect yourself.

With the meteoric rise in credit card interest rates and the plummeting credit limits I often wonder why more people don’t turn to credit unions for their credit needs. There was a time when going through the big banks for credit cards made a lot of sense—back when they’d offer no interest on balance transfers for 12 months or more, or when their incentive programs were actually a savings compared to their rates. Those days are long gone though as the big banks offer less and less attractive rates and incentives by the day.

The advantage to credit unions is that they are, technically, nonprofits run by their members. This means they can offer interest rates and fee schedules far below those offered by the big banks (you know, the for profit ones). Many might contend that credit unions have membership limitations, such as you have to work for a certain company or live within a certain geographical area. In my experience, and I’m speaking as someone who has dealt exclusively with credit unions since I opened my first passbook savings account over 2 decades ago, the membership limitations they have always contain loopholes. If you go in and tell them you want to open an account, they’ll find a way. They’ve earned my loyalty over the years, and I’m not speaking of any one particular credit union because I have opened accounts at 6 different ones due to relocations, because they have universally offered me better interest rates on car loans, home loans, checking accounts, lines of credit, and credit cards. In addition they have just plain treated me better, like a valued customer and not just a number.

I found a chart in a recent Pew Report that shows clearly the differences in rates between the big banks and your average credit union. Look it over and keep them in mind if you’re looking to minimize the amount you pay in interest, fees, and penalties.

The House voted today to hasten the enactment of fresh rules for credit card companies after constituents complained of a drastic rise in interest rates and steep new fees.

The bill, approved 331-92, will force credit card companies to meet the terms of the new rules at once unless they agree to stop increasing interest rates and fees.

The bills chances in the Senate are weak; where several Senators worry that a short deadline would hurt the industry and limit the availability of already scare credit.

All the same, Wall Street seemed to take notice of the House’s vote, sending bank stocks tumbling in the last hour of trading today immediately following the House vote

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, was quoting as saying “This is both real and a lesson to them”. Many feel this is a warning to the banks to back off their predatory practices.

The Credit Card Reform Act was signed into law earlier this year and was designed to protect consumers by regulating interest rate increases, the issuance of cards to people under 21, and the way information and what information is presented in communications from lenders. The downside was many in the Senate felt the rules were too harsh, so the banks were given 9 months to prepare for the changes. Instead they used the 9 months to wring consumers dry while it was still legal. Recent studies have shove that interest rates have risen by 20% in the past year on average. It seems odd that the banks argued that they needed months to enact the new rules, but have the business agility to enact rate increases and credit limit reductions almost instantaneously.

By Eva Norlyk Smith, Ph.D.

The Credit CARD Act signed into law in May of this year aimed to protect cardholders from unfair and abusive credit card practices. Unfortunately, as most all cardholders know first hand by now, credit card companies have been raising interest rates aggressively in advance of the enactment of the new law, in an effort to minimize the impact of some of its provisions.

Well, there may be good news. If your interest rate has been raised anytime after January 1, 2009, credit card companies could be required to lower the interest rate back down, once an important new provision of the new Credit CARD Act steps into effect.

Congress put a bit of a poison pill into the Credit CARD Act, a.k.a. section 101(c). The section requires credit card companies to regularly review interest rate increases they make on credit cards, and lower rates back down, if the cardholder’s risk profile or general market conditions have improved. The interest rate reviews will step into effect in August 22, 2010. Most significantly, the reviews are to include credit card interest rate hikes dating back all the way to January 1, 2009.

Credit card companies are further required to set up and maintain “reasonable methodologies” for the interest rate review, and undertake reviews at least every six months. Based on the review, if any risk factor has declined, the card issuer shall reduce the annual percentage rate previously increased. Card issuers will also be required to provide a written notice of future interest rate increases, including a statement with the reasons for the interest rate increase.

That is the good news. The bad news is that the law leaves plenty of uncertainties. Most notably, it says nothing about how much the interest rate reduction should be, or whether credit card companies will be required to reset interest rates to their previous levels. It also leaves out any discussion about which criteria card issuers should use to go about determining what constitutes “reduced risk.”

These specifics and other details of how 101(c) will be implemented are left to the Federal Reserve Board to determine, as the nation’s primary financial regulatory agency. The Fed is required to issue rules for how the interest rate reviews are to be conducted by February 22, 2010, six months before the interest rate reviews become effective.

Disturbed by the recent interest rate hikes on credit cards, Senator Chris Dodd, Chairman of the Senate Banking Committee, recently sent a letter to Fed Chair Ben Bernanke along with the heads of key regulatory agencies. In the letter, Dodd called on the Federal Reserve Board to provide tough, clear specifics for what would be required by the interest rate reviews. He further called on the agencies charged with enforcing the Credit CARD Act to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates.

Dodd asked Fed Chair Ben Bernanke to immediately notify credit card companies that they will be held accountable for all interest rate increases since January 1, 2009, and will be subject to the review requirement once it takes effect.

According to Senator Dodd, the January look-back provision was designed expressly as a means to deter card issuers from raising interest rates before the provisions of the Credit CARD Act take effect. “However,” Senator Dodd states in his letter to the Fed Chair, “the look-back provision will serve as a deterrent only if it will be implemented and enforced effectively.”

In view of the aggressive rate hikes that have hit consumers over the last six months, Section 101(c) could turn out to be one of the more important parts of the Credit CARD Act. Whether or not the regular interest rate reviews will have any teeth, however, will ultimately boil down to the criteria the Fed Reserve Board lays out for conducting the reviews and determining how much interest rates should be lowered.

We won’t know the details about that until the Fed issues the guidelines for interest rate reviews, sometime on or before February 22, 2010. After that, there will be a required public comment period, during which the public—and that means you and I—will be able to weigh in on whether or not the rules for interest rate reviews deliver on the intention of the law: to protect consumers against arbitrary and unreasonable interest rate increases.

Reprinted from The Pew Charitable Trusts
Written by Kip Patrick

Washington, DC – 10/28/2009 – One hundred percent of credit cards offered online by the leading bank card issuers continue to include practices that will be outlawed once legislation passed in May takes effect next year, according to a new report by the Pew Health Group’s Safe Credit Cards Project. The report also found that advertised credit card interest rates rose an average of 20 percent in the first two quarters of 2009, even as banks’ cost of lending declined. With the Federal Reserve currently developing rules to ensure penalty charges are “reasonable and proportional” as required under the Credit CARD Act, the report also includes policy recommendations for regulators.

“Since passage of the Credit CARD Act, we found that credit card issuers have done little to remove practices deemed unfair or deceptive by the Federal Reserve,” said Shelley A. Hearne, managing director of the Pew Health Group, which oversees the project. “In fact, some of the most harmful practices have actually grown more widespread–not one of the bank cards reviewed would meet the legal requirements outlined in the Credit CARD Act, which is bad news for consumers.”

The new report, “Still Waiting: ‘Unfair or Deceptive’ Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect”, examines all consumer credit cards offered online by the largest 12 bank issuers in America. These banks control more than 90 percent of outstanding credit card debt nationwide. The report also reviewed cards offered by the largest credit unions. The Pew Safe Credit Cards Project gathered data from July of this year on nearly 400 cards, building on its previous research from December 2008.

Key findings of the report show that:
• 99.7 percent of bank cards allowed issuers to increase interest rates on outstanding balances – a jump from 93 percent in December;
• 95 percent of bank cards permitted issuers to apply payments in a way the Federal Reserve found likely to cause substantial financial injury to consumers; and
• 90 percent of bank cards had penalty rate hikes with the vast majority imposed by “hair triggers” of one or two late payments in a year.
“The Federal Reserve must ensure that the rules it is developing will prevent unreasonable or disproportionate penalties, including penalty rate increases, which our data show remain far too common,” said Nick Bourke, manager of Pew’s Safe Credit Cards Project.

In July, median advertised annual percentage rates (APRs) for purchases on bank issued cards were between 12.24 and 17.99 percent, compared to a range of 9.99 to 15.99 percent in December 2008 (issuers advertise a range of rates depending on applicant credit profiles). Compared to December of last year, lowest advertised bank rates grew by more than 20 percent, while highest advertised rates grew by 13 percent. Pew’s previous report identified that issuers raised rates on nearly one-quarter of existing accounts, costing consumers a minimum of $10 billion in a one-year period between 2007 and 2008.

“Still Waiting” also provides the first comprehensive comparison of bank cards to those issued by credit unions, based on advertised terms and conditions. The analysis showed that credit unions offered much lower APRs, less punitive penalty rates and engaged in far fewer unfair or deceptive practices than their commercial peers.

To ensure that the Credit CARD Act is implemented to meet its goal of safeguarding the consumer, the report outlines policy recommendations for the Federal Reserve and other regulators to ensure that the new rules under development will:
• Regulate penalty interest rate increases in its rules governing “reasonable and proportional” penalty fees and charges in accordance with the law;
• Scrutinize partially variable rates, which can increase when the index rises but cannot drop below a minimum set by the issuer; and
• Eliminate credit card penalties that are not aligned with achieving the Act’s primary goals of protecting consumers against risky practices.
“When the Credit CARD Act takes effect next year Americans can expect to see safer, more transparent cards,” said Bourke. “How well the new law works, however, will depend significantly on how the Federal Reserve creates new rules under the law to protect consumers. In the meantime, issuers have the opportunity to move as quickly as possible to ensure their products are clear of the unfair and deceptive practices that unfortunately remain part of every card we reviewed for our report.”

The Pew Safe Credit Cards Project (www.pewtrusts.org/creditcards), part of the Pew Health Group, develops and promotes standards for consumer-friendly credit cards to help ensure the financial security of all Americans. The Pew Health Group is the health and consumer product safety arm of The Pew Charitable Trusts, a nonprofit organization that applies a rigorous, analytical approach to improving public policy, informing the public and stimulating civic life.

The governor of Illinois signed a law today that limits the marketing that credit card companies can do on college campuses.  Personally, I applaud this decision because I have experienced the detrimental affects of poor credit choices while young personally.  It was actually a pretty nice piece of legislation in that it doesn’t prevent credit card companies from marketing on college campuses, but it does mandate that if a college allows a credit card company to market on campus (something that the colleges make a ton of money on, never forget higher education is a business) they must also provide personal finance education as well, something sorely lacking in our society.  Kids going off to college walk through the commons, just like I once did, and see a shiny booth set up giving away t-shirts and Frisbee’s and coffee mugs, which lures them in, and then they get pitched on opening up a credit card with a $1000 credit limit.  If those kids are anything like I was at that age, bills were very much and out of sight, out of mind type of thing, so they’re stunned when they start to receive bills and realize they’ve spent hundreds of dollars that they wouldn’t have if they’d just been spending the cash in their pockets.  Credit is a necessary part of life in America, but it is also dangerous when wielded irresponsibly.  The repercussions of poor credit choices in college can reverberate throughout a lifetime.

Consider this, you go to college, get a great education, but also ruin your credit with irresponsible credit choices, choices you probably made naively because you had never been educated on how credit works.  You finish your degree and get offered your dream job, only to have that offer withdrawn at the last moment because the company hiring you pulled a credit report, saw your credit history, and decided that you were too irresponsible to handle their business.  That certainly isn’t the way you want to start your professional career.  That’s an extreme example of course, but also consider one more common—you do get that great job, and the salary that goes with it, but you are still driving around dad’s ’71 Nova.  You go to the car dealership and pick out the new Accord that goes with your salary and the image you need to put forth in the business world, only to be denied financing.

So what am I getting to with all of this?  Talk to your kids, educate them about credit. You talk to them about the birds and the bees, talk to them about interest rates and credit scores too.