College Credit Cards: A Bad Idea

The following is a guest post from Jonathan at Master Your Card.

Getting approved for a credit card while enrolled full-time in college isn't very tough at all. Plenty of credit card companies market their products directly to college students, fully understanding that their applicants probably won't have very much income at all and more than likely to not have any credit history whatsoever. Usually these factors would make credit card companies deny an application without a second thought, but when the applicant is a college student the application suddenly becomes quite attractive.

What is the difference between college applicants and those applicants who have the same income and credit rating but aren't enrolled in college? There are a few things, actually:

1. College students often rely on their parents for financial help. If a college student gets behind in payments, collectors from the credit card company will probably suggest that the student contacts mom or dad for the money needed to bring the account back to current status.

2. College students may be inexperienced with financial matters. Younger folks who don't have experience with credit may not completely understand how the system works, so they may charge up more than they can reasonably afford while also sending in minimum payments instead of making an effort to pay the balance off completely.

3. College students need to buy a lot of stuff. Between living expenses, books, tuition, and extra money for having a good time, attending college can be expensive. Instead of saving up for these expenses, credit cards allow college students to get what they need right away and then take their time paying it off.

4. Odds are, college students will increase their income upon graduation. College graduates who get cards in the first couple of years of college become valuable customers to credit card companies. The graduates increase their income exponentially, and already have grown accustomed to utilizing credit.

How can financial problems be avoided?

1. Parents should give their kids the financial education they need. A big factor with college credit card debt is the fact that many of the students don't really know how to handle a credit card. If parents thoroughly explain credit card usage to their kids – and maybe even allow them access to a card with a small balance to see how it all works – then perhaps the students won't go nuts when they get a credit card in college.

2. College students don't need multiple credit cards. Getting one card with a small available balance is one thing, but it's another thing completely when college students apply for every card offered. Multiple cards can translate to multiple problems.

3. Don't get a credit card. Is it possible to get through college without a credit card? Of course it is. It may not be as easy, and students may have to delay some purchases, but the eventual outcome will be much more pleasant when graduation time rolls around. After all, graduation will be a lot more celebratory if a ton of credit card debt isn't looming overhead.

4. Think about joining a credit union instead. Unlike banks, credit unions are not run for profit. This means that any income goes back to the credit unions own members, and not to faceless shareholders. See banks vs. credit unions for a more thorough breakdown.

We could debate for hours over who is ultimately to blame for college students getting themselves into credit card debt. Is it the fault of the college students themselves, or are they mere victims of the evil credit card marketing machine? Are parents to blame for not educating their kids about debt, or is it the fault of the college that allows credit card companies on campus?

Wherever the real blame lies, there is no denying that this is a real problem. If you're heading off to college, keep in mind that the best way to get through college is without incurring debt…especially debt that will grow and grow and grow until it's huge.

If you do need to utilize a credit card, use it for emergencies and necessities. In other words, don't put yourself in the position to where you're still paying interest for a pizza you ordered two years ago.

Comments

[rdub98]

Right on with #4. I work for a credit union and would NEVER go back to a bank. Bank is a four letter word as far as I am concerned.

On top of the better rates that credit unions often offer, they will also work with the person more to help in times of need and won't jack the rate for a few minor indiscretions like slightly late payments.

I disagree. I never had a credit card until I was 26, partly by choice and partly because I couldn't get approved until my husband added me to his. If I hadn't gotten married, I never would have been able to get a credit card or likely even approved for my mortgage (my only loan). On the other hand, my husband got a credit card while in college, used it for books and other essential purchases, and had a credit rating over 800 when he went to purchase his first car after graduation. However, I also know some people who got into a lot of trouble getting them that young. I think it comes down to using them responsibly and being educated about how they work.

[matt @ Thrive]

Yes, but no. Really, really no. As noted by a previous comment, having a good credit score makes an enormous difference in your financial life, and one of the key components of that score? You guessed it: the age of your oldest account.

Using Thrive's Credit Compass (which provides an estimate of your credit score for free), I played with the numbers a bit and it dropped my score around 30-50 points if I knocked the four years I was in college off my credit report. Over the course of a 30-year mortgage on a $300,000 house, that's about $20,000 difference.

I'm all for helping people control their spending, a mission Thrive certainly stands behind. But telling people not to get a credit card at the earliest possible chance? That's a no no.

[spivey]

I think your comment board just got spammed by one Mr Higgins.

I think it is good to get a card in college, but only spend on things you actually need. It is the parents' responsibility to educate their children before they move on to being more independent in higher education.

[Bill M.]

Its unbelievable how the credit card system wants to destroy the lives of people even before they get off their feet. The biggest problems is that most colleges are sleeping in the same bed as the credit card companies with kickbacks, etc.

[Financial Advisor]

I think all the credit card companies & Banks are equally responsible for the present debt condition. If you will ask me why then my answer is that before granting any loan they should have reviewed thoroughly the credit rating or report of the respective loan applicant. But in reality hardly they do this or even if they do this then also due to some unknown reason some where or the other some problem crops up & people gets debt burdened. At least this is what I believe.. Please share your views on my comment.

[David]

I agree that colleges are part of the problem. I've always believed that if colleges accept payments from CC companies and allow them to market on campus, then the college has a responsibility to teach some kind of financial responsibility, even if it's just to incoming freshmen.

[steve]

There is almost no doubt that "credit" is the most aggressively marketed product in our country -- and that is not a good thing...

It is not surprising that credit is being marketed to a group that typically has not established good financial habits and has not lived long enough to understand the long-term strain of debt on attaining personal financial success. CC companies want to get us hooked on their product at the earliest possible age, so college students are a great target (I have heard reports that some companies use students to market this stuff to their classmates). Schools allowing CC companies on campus is absurd and dangerous!

[Paula]

It is also the parents responsibility. My daughter is 19, heading for college this year, she took a summer off to get her license (don't get me started!) and save up a bit. She took financial/economic classes in high school but they really didn't teach her anything about personal responsibilities or even setting up a budget. If parents don't teach the kids there really isn't any other way for them to learn.

My daughter has a simple budget that we go over and tweak. At a part time minimum wage job she has saved over 1.5K for emergencies as well as money for college. She pays her own phone. We have discussed credit cards along with all the other finances.

The reason why the credit card companies market so aggressively to college students is they are like feeding sharks. But my child (hopefully!) is educated enough not to become part of the chum.

[Tim]

It's the parents' fault for not being parents and teaching their kids about the real world. I love my parents, but I blame them for not talking about finances with me or teaching me anything about it. Money being a taboo topic was the problem.

I don't blame the industry one bit for getting me into debt, I blame my irresponsible spending behavior. Although I'm glad I learned the tough lesson, I would rather have not had to learn it the hard way. I simply cannot understand how in this day and age where the credit industry has been constantly slammed for many years now that people continue to whine about the marketing strategies and terms the credit card industry employs. It seems no matter how much attention is placed on it, we continue to "choose" to ignore them. Really, so what if the credit industry are good marketers and entices you to sign up? It is only one link in the chain. You then have to continue to choose to use the card or not. The credit card industry isn't shadowing you every time you swipe the card for that Alf doll you bought when you got a D in biochem.

I don't see anything wrong with college credit cards. The fact is you need some sort of credit history if you want certain things like a mortgage loan, and starting your credit history early but responsibly makes sense. The key is being responsible.

[Eric S.]

"Getting approved for a credit card while enrolled full-time in college isn't very tough at all."

Really?? My daughter has been quite frugal (while going to community college and living at home), with a nice bit of savings, and has been denied several times. The Discover college card and her own bank have both kicked her credit card applications. She's caught in the catch-22 of not being able to build a credit rating, due to lack of credit rating.

- Eric

Amazes me how someone with $10K in credit card debt (and with $10K of student loans) is always said to be in unrecoverable trouble but someone with no credit card debt and $30K in student loans is not...

[Slinky]

I vote for #3 - don't get one. I never did and made it through college just fine. If you have student loans those will help to establish your credit. I also had a line of credit attached to my checking for overdraft protection. It was about $500 and I did abuse it for a little while, but it doesn't increase unless you go request it and eventually I wised up. I bought a car a couple of months after graduating and was in the top credit rating. There are lots of ways to build credit history besides a credit card.

[Denise]

I completely agree that parents should provide financial advice and education to their children. As a single mom I learned the hard way and I am doing everything in my power so that my children do not make the same mistakes financially.