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About Money Management: Credit Cards
Brinsfield, Donna$tudents need to know the ins and outs of credit cards before they get their first one. Share with them the following information to make sure they understand how credit cards work.
Emphasize the importance of building a positive credit history. Some possessions, like cars and homes, require more money than we can save in a short period of time. For these costly items in life, we need credit. Building a positive credit history by making payments on time can make it easy for students to get credit and make purchases. On the other hand, late payments on credit cards stay on credit bureau reports for seven years and can affect one's ability to buy a car or even rent an apartment.
Students need to understand that a credit card does not mean "free money. There are costs and benefits of having a credit card. Before applying for a credit card, students should decide what they would use it for. They should start small by charging a small amount they can afford monthly. Even if they cannot pay the total each month, they should pay more than the minimum.
The following activities demonstrate the costs involved in using a credit card.
Activity I
Save at least three credit card offers you receive. It is recommended that you cross out any personal information on these forms. Ask students to compare the annual fee, annual percentage rate, late fees, billing cycles, introductory rates, fixed and variable rates, cash advance fee, over-the-limit fee, etc.
Activity II
Answer the following question: To whom would you loan $100 and why?
a. David has been working for several years. He took out a car loan last year. He has been making the payments on time and has a good credit history.
b. Michael has been working for several years. He has been late on his car payments and recently stopped paying them all together.
c. Bob has been working for several years and has never applied for a loan and consequently has no credit history.
(Answer: David, because he has worked for several years and made car payments on time.)
The more young people know about how credit cards work, the more likely they will be in a position to use them in a responsible manner.
Donna Brinsfield is an accredited financial counselor at the Maryland Cooperative Extension in Denton, MD.
Copyright American Society of Educators Sep/Oct 2003
Provided by ProQuest Information and Learning Company. All rights Reserved
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