Memo to college students and their parents: credit cards aren't all bad.
With all the stories written about students and the perils of credit card debt, it's easy to forget the upside of signing up for a credit card as a college student, namely establishing credit.
Good grades, but no credit?
Making the leap from college to the real world is going to be a whole lot tougher without a credit history. You could get turned down for an apartment when a potential landlord checks your credit history and finds nothing there. Or you could be asked to shell out an enormous deposit before moving in.Something as simple as turning on the lights in your new place could cost you as well. Since you don't have a credit card, many utility companies will require $100 deposit before powering up your apartment. And you won't get your $100 back for a year.
Without a credit history, you're a great unknown. Your lack of a payment record makes you a great big blank and a risk.
Who checks your credit?
| • | Landlord. | • | Banks and lenders. |
| • | Utility company. | • | Major credit card issuers. |
| • | Car insurance company. | • | Employers. |
"If they have no basis for making a decision they have to assume you're high risk," says Maxine Sweet, vice president of public affairs at Experian, a credit-reporting bureau.
Anytime someone checks your credit, you'll end up paying a little more. Insurance companies check, so you'll pay even more for car insurance. Looking to buy your first car on your own? Brace yourself for a high interest rate.
Even getting a credit card will be a lot more difficult. All those credit card offers you tossed away as a student will be much harder to come by in the real world.
Let's say a pre-approved credit card offer does come your way. There's a good chance you'll be turned down. The reason? The lack of a revolving credit account on your credit report.
"Ironically, they find themselves once they graduate unable to qualify for a credit card," says Dara Duguay, author of Please Send Money! A Financial Survival Guide for Young Adults on Their Own.
You may even have trouble getting a credit card from your bank. They'll take your deposits and give you checks, but they won't give you a credit card.
Experience is everything
You've run right into credit's big Catch 22. You can't build up a credit history without a credit card, and it's really tough to get a credit card without a credit history.