Credit cards are an indisputable fact of life and there are many good reasons to have one. They give you protection for your purchases, allow you to shop online, and provide a cushion in case of emergencies. The secret is to use the credit card as a tool to help you when you need it, but not to excess. Discuss with your family what kind of expenses it is reasonable to charge.

Credit card abuse has become such a problem that, in February 2010, the federal government recognized the importance of protecting college students from the consequences of misusing credit cards. They enacted legislation changing how credit card companies can do business with students. Although the law provides some protection, it’s still up to you to manage credit wisely.

Credit Card Offers on Campus

The law bans credit card companies from issuing cards to people under the age of 18. If you’re under 21 years old, you need an adult cosigner to get a card, unless you can prove that you have the financial means to pay your bill. Other provisions in the law limit some of the fees credit card companies can charge — and, in response, the companies are raising interest rates to avoid losing income. Anyone without an established credit history may face the highest interest rates — and that group typically includes students.

If you don't already have a card, you’ll have plenty of opportunities to apply for one once you hit campus. It shouldn’t surprise you that the companies are allowed on campus; many colleges earn money by permitting this practice and from creating affinity cards — credit cards that include the name of your college. The law requires that educational institutions and credit card companies let you know about these agreements, but the messages may be subtle. Learn about fees and interest rates to protect yourself.

Carrying a Balance Can Be Very Expensive

Credit cards are actually high-interest loans in disguise. Companies may lend you money, but they get it all back and a lot more by charging you fees. Annual Percentage rates (APRs) charges on the unpaid portion of your bill can be as much as 25 percent each month, and cash-advance fees have even higher interest rates. Annual fees just to carry the card in your wallet range from $20 to $100; there are also late-payment fees, typically $25-$50.

Not paying off the entire amount in your account each month can lead to big finance charges.

Take the story of Joe.

Joe's average unpaid credit card bill during a year is $500, and his APR is 20 percent — so he has to pay $100 in interest for the year. He pays a $20 annual fee per year, plus a $25 late fee one month (he was up late studying and forgot to mail in his check). After a year, Joe ends up owing $145 in interest and fees to his credit card company, and he still hasn't paid for any of his actual purchases!

Your Credit Report Matters

Your college years are an important time to build the good credit history you need after you graduate. You need to provide a credit report to apply for an apartment or finance a large purchase, such as a car. Employers often review a credit report when they hire and evaluate employees. Problems with credit cards, such as late or missed payments, stay in your credit report for seven years.

Be Credit Smart

When you sign up for a credit card, you are responsible for paying the bills. Follow these rules of credit management to lead a financially healthy life:

• Consider using a debit card instead of a credit card. Money is deducted directly from your checking account, so you can't spend more than you actually have.
• Read all application materials carefully — especially the fine print. What happens after the "teaser rate" expires? What happens to your interest rate if you're late with a payment or fail to make a payment? What's the interest rate for a cash advance?
• Pay bills promptly to keep finance and other charges to a minimum; pay the balance off if you can.
• Use credit only if you're certain you are able to repay the debt.
• Avoid impulse shopping on your credit card.
• Save your credit card for a money emergency.

Additional Resources

The Federal Trade Commission provides free information to consumers on dozens of topics related to credit and credit cards.