Should your college freshman apply for a credit card? Maybe. If you look on the bright side, getting a credit card can help establish a credit history, assure some security in an emergency, and teach your kids lessons about responsibility and independence. The dark side? A credit card is a quick way to create long-lasting debt.

Once your high-schooler has been accepted to college, your mailbox is likely to bulge with credit applications. Credit card companies offer such irresistibly low rates that two-thirds of today's college students have at least one credit card. Make sure your kids are aware of the risks that come along with plastic. Fill them in on the following points:

• When you use a credit card, you're borrowing money from the credit card company to make a purchase. You'll then receive monthly statements that list the charges and request payment of this "loan."

• A credit card isn't free money.

• You should only charge what you can afford to pay back.

• Credit cards shouldn't be a money substitute for items you can't afford.

• Charges should be paid back on time, since when bills aren't paid in full, the outstanding balance collects interest charges.

• It's important to pay bills in full, but when that's not possible, an amount more than the minimum payment should be paid.

• If you pay just the minimum due you are not reducing the amount owed, since interest charges are accruing.

• Always notify card issuers when you move so that account statements can be delivered promptly, avoiding additional fees and interest payments.

Establishing credit

• Help your kids understand that their credit record, just like their school transcript, can have a lasting impact on their lives. While the grades in a transcript reflect academic performance, the credit payments, debt, and income recorded in a credit history show the level of financial responsibility.

• As a financial resume, your children's credit history will be taken into consideration when they want to get a loan, buy a car, rent an apartment, get a job, or buy a house. A strong credit history is vital to a good financial future.

• With student loans and credit cards, college students can start a good credit history by establishing their ability to manage and repay debt. To help maintain a good credit history, remind them to: live within a budget, pay all bills on time, keep accurate records of all finances, carefully track how much is being charged to avoid overspending.

The pros

A credit card can cover a few expenses while you wait for cash from your financial aid plan, part-time job or parents.

If your car breaks down while you're traveling to campus, a credit card can be a lifesaver. Booking travel arrangements, like airfare home for the holidays, also becomes easier with credit. Moreover, the credit card "loan" you get may be interest-free for nearly a month, since most banks allow cardholders a grace period to pay the balance.

A credit card also serves as a form of identification, even if you don't use it for charging things. And if you always pay the balance on time you establish a good credit record, which is critical for making future large purchases.

The cons

A credit card can sometimes make shopping a little too easy. Large balances can build up quickly. You may suddenly find it takes all your extra cash just to make the minimum payments. Credit cards can be a very expensive means of borrowing. If you put $500 worth of books on a credit card charging 18 percent interest, made monthly payments of $20 and charged nothing else to that card, it would take two years and seven months to pay off that debt. In the end, $500 in books would cost you $619.50.

Tips for good credit

So as you sort through the applications that cram your college mailbox, here are a few tips:

• Carry only one card. This will keep you from "maxing out" several cards at high interest rates.

• Read the fine print. Look for cards with no annual fee. Some cards charge fees for services you don't need.

• Beware of cash advances. Virtually every credit card charges a cash advance transaction fee - usually $5 or 2 percent. Your repayments will probably be figured at a higher rate of interest as well.

• Check out annual percentage rates. They can vary from single digits to more than 20 percent (especially for cash advances). Some lenders charge a fixed rate; others follow the prime lending rate. Study the applications or run an online search to make sure you're getting the best deal.

• Look for a generous "grace period." That refers to the amount of time a lender allows before charging you interest on the balance due.

• Get a card with a low credit limit. A card with a limit of only $500 to $1,000 will help you control your spending.

• Bob McDonnell is executive director of Arizona College Planners, L.L.C., a member of the College Planning Network, the National Association of College Funding Advisors and the National Association of College Acceptance Counselors. For questions, email

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