Student Credit Cards in College

It is very easy to be swept up in following the crowd, no matter who you are. Unfortunately, this principle extends to finances with the debate of credit cards for college students. There has been a significant outcry of individuals who believe that credit is given to college students much too easily and often.

It is an unfortunate, yet somewhat predictable truth that low credit typically associated with a first-time card for a college student ($500-$1000) usually is less expensive than the cost of a college finance course. This probably is not an accident. It is too bad that most students would enjoy using a credit card much more than they would enjoy sitting in the finance class!

The hard facts:

• 63% of college students have at least one credit card.
• Only 58% of those who own a card pay their balances every month.
• The longer a student has had a card, the less likely he or she is to pay off the balance.

Some studies suggest that unnecessary credit for students might have a negative effect on more than just their debt situations. About a third of students have reported that they actually cannot study as well as they normally would be able to because of stress caused by credit card debt.

The "hard" tips:

• If you must have a credit card as a student, keep only one.
• Deliberately keep your maximum available credit as low as possible.
• Consider getting a credit card that requires collateral, even if you are eligible for a non-collateral card. While this might sound scary, such action tends to limit the use of credit.
  

Credit cards do serve a potentially positive purpose for students, however. Along with student loans, credit cards help to build students’ financial profiles in America. Most other credit-worthy items encountered by college students normally do not report to the credit agencies. Even though it is important to pay for utilities and the like to build useful credit habits, such action does not help to build one’s credit history. Parents should discuss with their students how best to build credit, just as they would discuss any other important aspect of college finances.

A large number of students with both credit cards and student loan cash (75%) report that they use some of their student loan money to pay off credit card debts. With cash in their hands and no real plan to avoid debt, students are likely to burn through this money, as well.

It is great experience and a worthwhile head start for students to learn to manage both a checking and a savings account. A student with a checking account can obtain a debit card, which matches many of the benefits credit cards without the risk of incurring debt.

If a credit card is necessary, parents and children might decide to make the responsibility mutual. If parents co-sign on the card, this might restrain both parties from relying on credit cards too much. On the other hand, if the student runs up debt, the parents’ credit is as risk as well.

Regardless of whether credit is extended to a student alone or also to parents, there are basics that every student with a credit card should consider. Make it a point to know specifics about:

• Finance charges
• Annual dues or membership, and enrollment fees
• Late payment and grace periods
  
• Special fees, changes in introductory rates, or penalties

Your ultimate financial goal should be to have a good credit report come graduation. If you consistently pay your credit card balance on time and in full, it is conceivable that you could have a credit score of more than 700 shortly after stepping out into the “real world”. A high credit score and a diploma will open doors for you to put down solid financial roots.