|
Student Credit Cards 101
If
you’re a college student, you probably already have a credit card. If
not, you may have plans to get one or more soon. So why should you read
on?
·
Because financial debt is one of the main
reasons that many students end up dropping out of college.
·
Because your college years can be some of
your most memorable—and some of your most costly. They don’t, however,
have to be the beginning of an adult life strapped with debt.
·
Although you may still feel in limbo
between your teen years and adulthood, it’s time to take charge of your
finances and manage them as an adult. The sooner you do, the sooner
you’ll be able to start saving and spending your own money.
For
those new to credit cards and for others who know all about credit,
let’s go back to the basics.
Why
do credit card companies court college students?
It’s obvious by the friendly representatives who offer a free t-shirt or
CD just for signing up in the student center. Or the applications
slipped into bookstore bags. Or mail boxes crowded with card offers.
Credit card companies want college students to carry their card.
Did
you ever stop to wonder why? One reason is loyalty—once a person has a
card in their wallet, they are likely to keep that particular card and
its upgrades for years to come. Another reason: college students are
good customers.
While this may seem ironic considering that most college students are
without a steady source of income, Robert Manning, Ph.D., Professor in
the College of Business at Rochester Institute of Technology and author
of Credit Card Nation, says this is one example of how the credit card
industry has changed radically in the past decade or so. “Previously,
conservative rules deemed a good customer as one that paid their bills
on time,” he says. “Now, a good customer is one that can’t repay their
debt.”
“Credit is no longer an earned privilege,” continues Dr. Manning. “It’s
now considered a social entitlement, and the screening criteria (for
card applicants) is weak.”
Banks make money by charging annual fees, late payment penalties and
interest fees on unpaid credit card balances. Therefore, card holders
with revolving debt (those who do not pay their balances in full each
month) are desirable. NellieMae.org illustrates this point beautifully
through an example of a student with a credit card balance of $7,000 at
an interest rate of 18.9%. If this student faithfully makes the minimum
monthly payment of 3% or $25 – whichever is higher, and does not charge
anything else to the account, it will take more than 16 years and $7,173
in interest fees to repay the bill!
Additionally, Manning notes the banking industry has learned that
college students will draw upon various sources of income to pay their
debt—including student loans, money from part-time jobs, and as a last
resort, many will ask a family member to supply the funds to get them
out of debt.
How
to make credit work for you, not against you
According to Nellie Mae, 81% of college freshman have at least one
credit card. And for good reason. Credit cards enable online
purchases—from text books to concert tickets, make it possible to rent a
car, and help with medical emergencies or vehicle breakdowns. Used
wisely, credit cards can be helpful throughout college, and can assist
you in the development of financial management skills.
As
soon as you get your first credit card or loan, you have entered the
world of credit reports and scores. A credit report is compiled by
credit bureaus and contains information about your identity and credit
relationships, among other things. Credit scoring is a system that
lenders use to help determine your ‘credit worthiness.’ Credit scores
are based upon your bill-paying history, the number and type of accounts
you have, late payments, collection actions, outstanding debt and the
age of your accounts.
It’s vital to know that your credit score affects your ability to get
loans, car loans, and home mortgages. Future jobs and insurance premiums
can also be influenced by your credit score. By paying your bills in
full or in a timely manner, a credit card will help you establish a good
credit score. Late payment or no payment will help you earn a poor
credit score. For more information on credit reports and scores and how
they affect you, check out
CardRatings.com.
This article is the property of
www.bestcreditcardsonline.com,
which has been offering credit cards services since 2002.
Add to my Favorites
|
