College students, prepare
for a credit card deluge
You're young, keen to assert
your independence, and you're being offered credit cards wherever you turn.
become a college rite of passage.
before this year's freshman class settled into their dorm rooms, the credit card
offers were rolling in.
"As long as you're a full-time student,
you can get a card," said Gerri Detweiler, author of The
Ultimate Credit Card Handbook. 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.
card issuers want college students as customers because students tend to be loyal
to their first credit card, and they'll keep on charging long after graduation.
card issuers used to require parental approval before issuing a card to students
who had no independent income source, but they abandoned that hands-off strategy
in the '90s.
Colleges are raking in the dough
Instead, the card issuers aggressively went after the student market. They allied
themselves with college campuses with exclusive marketing agreements and other
financial "sweetners," like multi-million dollar donations for naming
rights to university buildings. According to Robert Manning, author of the book
Card Nation, those deals could now yield the nation's 300 largest universities
an annual average of from $750 million to $1 billion in the next decade.
well, credit cards can play an important role for college students. They teach
financial responsibility and ease the way into the postgraduate financial world.
Detweiler 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 credit cards can also leave financial
bruises that don't heal until long after the diploma has yellowed on the wall.
Experts say students too often learn about the high cost
of credit cards the hard way: after they run up balances.
as you go along is expensive," said Steve Bucci, Debt Adviser for Bankrate.com
and president of Consumer
Credit Counseling Service of Southern New England.
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 students.
"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."
balances on credit cards can be quite costly, especially if you can make no more
than the minimum payment each month. Detweiler says that by sticking to minimum
payments, it would take you 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.
yet, falling behind on credit card payments hurts your credit and a bad credit
rating can affect your ability to rent an apartment, or buy a car or house. The
mark stays on a your credit record even if the bill is later paid in full, and
insurance companies and employers may also check credit reports.
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."
Check out this syllabus
full of answers for students and parents on the unique features and traps
of credit cards targeted to students.