How Student Banking Works

Student Banking: Credit Cards

According to a 2008 study by SallieMae, 84 percent of undergraduate students have credit cards, and by the time they're seniors, they've accumulated some $4,100 in debt, on top of whatever student loans they may have taken out [source: SallieMae].

Credit cards are the ultimate in convenience, and they're aggressively marketed to college students. Reportedly, today's typical college student carries 4.6 credit cards and $3,173 in credit card debt [source: SallieMae].

Credit cards seem to be a fact of life, and not just student life. In the long-term, using a credit card properly and paying off the balance can help establish a credit history and bump up your credit score, which will come in handy when you need an important loan, for a house or car, for example. Your credit score can affect even unrelated things like insurance rates. Credit cards also offer more protection for users than debit cards. Under federal law, the credit card holder is only responsible for the first $50 in fraudulent purchases in cases of theft or loss. However, debit card users are responsible for the first $500.

SallieMae found some good news in the fact that two-thirds of students had discussed credit issues with their parents, but 84 percent said they needed more information. The one-third who didn't get any guidance were more likely to pay their tuition with credit cards, and were more likely to be surprised when they found out how much they owed [source: SallieMae],.

While credit cards offer the easiest access to money, they make it easy to live outside your means. Less than one-fifth of students surveyed paid off their balance every month, and carrying a balance incurs finance charges, sometimes at a very high interest rate [source: SallieMae]. SallieMae found that almost 40 percent of students chose their first credit card based on direct mail, which is probably why students get so many credit card offers in the mail. But when the credit card offers flow in, be sure to read the fine print. Offers of low or no interest rates can evaporate, leaving you with a debt that climbs beyond your ability to pay it off.

Sometimes there's another option for students looking for extra cash: the time-honored tradition of asking your family for money.