Prepare for credit card deluge
They're young, they're keen to assert their independence,
and they are being offered credit cards wherever they turn.
It's become a college certainty.
Even before this year's freshman class settles into their dorm rooms,
the credit card offers will be rolling in.
Most will bring limited credit lines and relatively
high interest rates. And they are easy to get. Very easy to get.
There are few income requirements to worry about.
Use it well
Used well, credit cards can help a student establish a respectable
credit history. Gerri Detweiler, an education Adviser for Debt
Counselors of America, who penned a brochure for students and
parents, puts it this way: "The best reference you'll find on a
credit report is a major credit card paid on time, all the time."
But they can also can leave financial bruises
that don't heal until long after the diploma has yellowed on the
Experts say students too often learn about the
high cost of credit cards the hard way: after they run up balances.
"Learning as you go along is expensive," said
Steve Bucci, president of Consumer Credit Counseling Service of
Many student cards come with high rates. In the June, 2000 Bankrate.com
survey of lenders that offer student credit cards, the
average rate came out to 17.51 percent, about a half a percentage
point higher than the average for all variable-rate credit cards.
Among the student-card issuers, those offered
by credit unions tended to have the most consumer-favorable terms,
led by the 12.5 percent fixed-rate Visa card offered by Navy Federal
Credit Union. Six out of the seven credit unions surveyed offer
student cards with APRs less than 15 percent, and all had lower
late fees than their commercial counterparts.
Students seeking credit cards should view teaser
rates -- those incredibly low introductory rates that last about
six months -- with caution. What will the APR be after the introductory
Also be aware that one late payment and the
rate, whether it's during an intro period or not, often will be
jacked up to 20 percent or more, and there will be a hefty late
fee to boot.
While cash advances may be tempting, check out
those interest rates. They can be as high as 22 percent for cash
draws. And watch the annual fees.
"All cards are not the same," said Dara Duguay,
executive director of the Jumpstart
Coalition for Personal Financial Literacy. "You need to shop
choice is yours
And students will have plenty of credit cards to choose from. Credit
card issuers want their business because students tend to be loyal
to their first credit card: They keep on charging long after graduation.
Express all have Web sites dedicated to college students and
packed with financial tips and information, as well as online credit
"As long as you're a full-time student, you
can get a card," Detweiler said. Why is it so easy? Because credit
card issuers realize that parents can be counted on to bail out
students who run up oversize balances or fall behind in payments.
"I've talked to parents who were totally shocked
at the amount of the credit card bill," Duguay said. "I've heard
everything from $500 to several thousands of dollars."
The best way to avoid having to explain that bill to mom and dad
is to learn to get by with one or two low-limit credit cards. Keep
those balances down. A credit limit of $1,000 is plenty for most
"We have a rule of thumb for kids who say they
need a card for emergencies," Bucci said. "If you can eat it, drink
it or wear it, then it's not an emergency."
"We also caution kids: If a lender gives you
cards with $1,000 or $2,000 limits, that doesn't mean you can afford
to carry a $1,000 or $2,000 balance."
Carrying balances on credit cards can be quite
costly, especially if the student can make no more than the minimum
payment each month. Detweiler of Debt Counselors says that, by sticking
to minimum payments, it would take a student more than 12 years
and $1,115 in interest to pay off a $1,000 bill on a card with an
18 percent annual rate.
Worse yet, falling behind on credit card payments
hurts a student's credit and a bad credit rating can affect their
ability to rent an apartment, or buy a car or house. The mark stays
on a person's credit record even if the bill is later paid in full,
and insurance companies and employers may also check credit reports.
"It's not like cutting a class," Bucci said.
"The credit report folks are there and they are watching, and it
will be on your report for seven years."
-- Posted: Aug. 27, 1999