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Banking 101: Students and credit

Sunday, August 08, 2004
Mary Judice
The Times-Picayune

If you're trying to get your family back into school, chances are you're a little overwhelmed by all the decisions that have to be made.

By now you've probably figured out how you'll finance your student's tuition, room and board, but what about his or her personal accounts? There are decisions to make about banking, credit cards and spending habits. And it's probably better to make these decisions together before your teen arrives on campus and is bombarded with account offers.

Getting on the same page

Start by deciding what banking arrangements you will make for your son or daughter. In this age of automated teller machines and cash-back transactions at many retailers, you may not need to open a checking account in the college town.

However, if your children are going to use ATMs, review the banking arrangement to be sure they are not charged a fee for each withdrawal. Also find out what the fees are for bounced checks. Free checking accounts are readily available, but the fees associated with these accounts can quickly add up.

It also wouldn't hurt to have a session on reconciling the monthly bank statement before the account is opened. In this age of online banking, college students should be able to monitor their balance routinely.

Handling temptation

Now for credit cards.

Needless to say, if your child has not received a credit card offer yet, he or she will get one soon, even though Louisiana law does not allow credit card companies to solicit on state college campuses during registration. The state also prevents college employees from advertising credit cards to undergraduates and bans the sale of student lists to credit card companies.

If your student has little or no income, the first decision to make is whether a credit card is necessary. If a credit card seems appropriate, decide how it will be used and who will pay the bill. And shop the terms of the cards you are considering at a site like www.Bankrate.com, which provides information on credit card rates.

Give some thought to the credit limit you'd like imposed on the card. You do not have to take the limit offered if it is higher than the amount your student needs. After all, you are not only buying convenience but providing an opportunity for your student to create a credit history. A good credit history will be the foundation for the best rates on automobile loans and home mortgages later on. If your child is tempted by a credit limit that's too high, his or her credit history could get off to a rocky start.

Help online

If you decide against a credit card, you might opt for a prepaid card, such as Visa Buxx, which allows parents to supply money by phone or on the Internet. Or you could opt for a secured card where the cardholder deposits money into an account from which the charges will be withdrawn.

I found a Web site, www. practicalmoneyskills.com, that explains how these cards work, what your responsibilities as a cardholder are, and what to do if the card is lost.

The best part, though, is a calculator that shows how much interest you would pay over time if you did not pay the bill in full each month.

How much should you charge? The rule of thumb is you should not borrow more than 20 percent of your yearly net income and that monthly payments should not exceed 10 percent of your net income.

With some honest discussion, your student's first credit and banking experiences can be good ones.

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