College students: Good with credit cards, not credit-smart

Survey shows responsible behavior but some misunderstandings

How do you think today's college students aka Generation Z handle credit? Have they learned from millennials, who were severely affected by the Great Recession, or are they taking a more relaxed approach toward controlling credit and debt?

A survey from Equifax found that while college students are approaching credit with relative caution and responsibility, they could benefit from further education on the subject.

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The survey polled 600 students between 18 and 24, the prime age to start building credit. Sean McQuay, a credit and banking expert at NerdWallet, suggests that students should look for advantageous cards such as student credit cards or a secured card so they can begin building credit from a young age. 

Whether helped by previous experience or not, college students seem to understand the importance of having a credit card and using it responsibly to build a solid credit score, the survey found.

Nearly 70 percent of students in the survey had at least one credit card, 72 percent of those with credit cards paid off all the balances each month, and another 18 percent had their bills paid off by their parents.

Only 10 percent carried monthly balances, and 59 percent of those respondents had a plan to pay off the balances within a year.

Learn about different ways to pay for school, tools for managing money, and how to build credit for the future.

"Having a low credit score can really put a hamper on accomplishing certain goals, like trying to move out and get your own place," said Stefanie O'Connell, a millennial money expert.

O'Connell summarized the landlord thought process: "Have you paid your credit card bills on time? If so, then you will probably pay the rent on time."

Students also understand that credit scores are important, but they do not always realize what affects them. Many survey respondents correctly identified factors that affect credit scores, such as paying bills on time (73 percent), the amount of credit card and loan debt (66 percent), the types of credit cards and loans (59 percent), the length of credit history (55 percent) and opening a new credit account (51 percent).

However, many also incorrectly identified factors that have no effect on a credit score, including denial of credit (40 percent), interest rates of credit cards/loans (37 percent), checking credit reports (22 percent), credit counseling (14 percent), changes in hourly pay (11 percent), driving records (10 percent), and gender (2 percent). In addition, fewer than half, (43 percent), had ever bothered to check their credit scores.

Melanie Wing, Equifax's vice president of customer insights, said Equifax sees a teaching moment in the survey. "We saw this survey as the beginning of a unique opportunity Equifax has to help Generation Z understand how credit works, and the long-term impact it can have with life milestones," Wing said, adding that ongoing education about credit is a key to future positive credit experiences.

Overall, the Equifax survey shows that college students appear to be trending toward responsible behavior. For those who are not, Jocelyn Paonita Pearson, founder of the Scholarship System, had some advice: "You really need to be disciplined if you're going to take out a credit card ... a lot of students, they get this card and they look at it like free money, but that's just not the case."

Experts recommend ever charging more than you can pay off at the end of the month and sticking to a budget to help you stick to that goal. Carry a balance only in emergency situations, and have a plan to pay off any debt that you incur as quickly as possible. Save your debt capacity for more meaningful purposes down the road.

Read the original story on MoneyTips.com. 

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