College students are the largest identifiable segment of first-time customers for credit card issuers — and competition for the college market is fierce.

Although the CARD Act made it illegal for credit issuers to swarm college campuses offering T-shirts and free swag, young adults will undoubtedly be exposed to numerous enticing credit card offers.

When used wisely, credit cards can help you establish a respectable credit history, and serve as a valuable asset for future finance opportunities. However, when handled improperly, the resulting debt can become a terrible liability that can linger on past graduation.

With this in mind, the following are the six things everyone should know prior to opening a line of credit. You should know:

1. Your budget. How much of your monthly income will go toward paying credit card bills? Monthly debt payments should not exceed 20 percent of your monthly take-home pay or monthly allowance.
2. Your options. Look for cards with low interest rates, little or no annual fee, and a reasonable “grace period” to allow “free time” before finance charges begin.
3. The risks involved. What would happen if you defaulted on the credit card agreement? Just a few late or short payments could have a huge affect on your interest rate and credit file. Once blemished, a good credit record is difficult to rebuild.
4. Your limits. Just because you have a $1000 or $2000 credit limit does not mean you can afford to carry that high of a balance. Keep in mind that most minimum payments average four percent of the total balance owed.
5. Due dates. One of the best things you can do to establish or improve your credit is to pay your bills on time. This isn’t limited to just your credit card bills or student loans, but also means your rent, utilities, and phone bills.
6. The fine print. Before you sign any agreements, be sure that your interest rate won’t skyrocket in six months, and be sure that any ‘rewards’ you get aren’t outweighed by hefty interest rates. And remember, credit cards are not new money, free money or more money. They are just loans that you have to pay back!

The bottom line is simple. If you don’t have any extra money in your budget to repay the amount charged (including the interest!) within a reasonable time, you can’t afford to incur the debt. 

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