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College Students and Credit
The MMI Online Articles are designed to inform, assist, educate and alert consumers.
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College students are the largest identifiable segment of first-time customers for credit card issuers. Competition for the college market is fierce and is only expected to intensify. Why would the credit card industry be interested in a group with such an obvious lack of credentials?
Students have the reputation of being less risky than the general population. According to Credit World, students switch cards less often than the general public and they tend to remain loyal to the company that issued them their first card. According to Roper College Track, the main reason students say they want a credit card is to establish a positive credit history. What’s more, there is a fresh pack of prospects each year called “freshman.”
When used properly, credit can be a tremendous asset. However, when handled improperly, the resulting debt can become a terrible liability for a student. For example, if a student racks up a $1,000 credit card bill his freshman year, and pays the low minimum payment each month, he will finish his bachelor’s degree, complete his master’s program, finally begin earning a living and still have three and one-half years to go to pay off that spending spree. In addition, if a student ruins their credit in college, it can ruin their chances of obtaining future credit for the next seven years.
Money Management International (MMI) offers the following tips to help students avoid credit problems:
- Before seeking any credit, prepare a spending plan, or 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.
- Invest time when shopping for credit and know 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.
- Since different types of credit have different interest rates and terms, use the same amount of time and research shopping for credit as you would a new car or other major purchase.
- Consider the risks involved. What would happen if you defaulted on a loan?
Finally, remember that credit is a privilege, not a right. Ask yourself if the use of credit hurt or help you achieve your personal and financial goals? Once blemished, a good credit record is difficult to rebuild.
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