More than half of all college freshmen will sign up for credit cards and most will own two or more cards by the time they graduate, reports Nellie Mae, the governing body that manages national student loans. In fact, the typical graduate leaves school more than $20,000 in debt from loans and credit cards. But with the cost of higher education increasing faster than the income of parents of college-age students according to the College Board, the financial stakes are significant.

“Most students will leave college with some sort of student loan, that’s not unusual these days,” points out Sabrina Marschall, College Administrator, University of Maryland. “But when you get that combined with major credit card debt, that strangles a lot of students who are starting their new adult lives.

“A college education is certainly a smart investment,” says Jeanne M. Salvatore, Vice President, Consumer Affairs, at the I.I.I. “But, as they enter the workforce, their credit record will have impact on their lives, just like their college record does. So, how a student manages credit cards, student loans and bills is also part of the college experience. They need to be able to hit the books and balance their checkbooks at the same time.”

“A person’s credit history begins with a first credit card,” says Linda Golodner, President, National Consumers League. “Most young people are surprised to learn that their credit history will affect them for the rest of their life -- whether or not they will be able to rent an apartment, finance the purchase of a car and even get a job.”

“A person’s credit score will also affect both the price and availability of insurance for cars, homes and even small businesses,” points out Salvatore.

Parents and students need to work together to develop a financial plan for college and a budget. Specific educational expenses, including tuition, room and board, books and fees, can be viewed as “good debt” and can be covered through student loans, grants and the like. Day-to-day college expenses, including personal needs, transportation costs, telephone and other incidentals, are the types of expenses that students more often than not charge on credit cards.

Consumer debt is much more expensive and needs to be carefully monitored. Carrying high, unpaid balances is one of the quickest ways to incur too much debt and fall behind in payments. If college students plan to use a credit card regularly, they should have limits and know ahead of time where the money will come from to pay the bill at the end of the month.

When deciding on a credit card, students should read the fine print and shop around for the best terms. Look for cards that:

• Have an annual percentage rate at or below 15%
• Offer a grace period of at least 25 days
• Feature no annual fee

As students use credit cards and start paying other bills, it is important to check credit reports at least once a year. In many states (CO, GA, MA, MD, NJ & VT), annual checks are free. In other states the cost is up to $8 per report.

To develop good financial habits, the I.I.I. suggests that students:

• Learn to stick to a budget. Living within a budget is an important skill to master.
  
  
  
• Pay bills on time. Students who pay bills on time will start to build a solid credit history. Late payments can also be more expensive since they frequently result in extra fees or other penalties.
  
  
• Use credit responsibly. Remember, credit is a loan -- one that will need to be re-paid with interest. Monitor monthly bills and make spending adjustments accordingly. Also, avoid spending up to the limit on credit cards. It is a good idea to have credit available for emergencies.
  
  
• Keep in touch with creditors. Far too often, students get into financial trouble because they change residences and forget to tell their creditors. A lost bill can easily turn into a late payment and black mark on a credit report.
  
  
• Consider credit counseling. Those who find themselves in a financial bind should consider credit and money counseling. Information is available from the National Foundation of Credit Counseling at www.nfcc.org or the American Center of Credit Education at www.acce.org. Students should also consider taking advantage of any financial literacy programs that are offered by many colleges and universities.

For more information on insurance, you can access the I.I.I.’s credit website at http://www.howcreditworks.org or call the National Insurance Consumer Helpline at 1-800-942-4242.