Student Credit Cards – Use Wisely
Students walking through the student union of their college are likely to be bombarded with customer service representatives from several different credit card companies. These representatives offer the students gifts in exchange for filling out a credit card application. It is no coincidence these credit card companies are out in full force competing for the business of college students. They not only offer rewards in exchange for filling out an application, but also assure them it is very likely their application will be accepted. Surprisingly there is no shortage of creditors who are willing to issue a line of credit to unemployed college students with no previous credit history.
Credit cards issued to college students are often categorized by low spending limits and high interest rates. This typical scenario is in the best interest of the creditor. A low spending limit ensures a lower risk for the creditor. Even if the student spends the maximum amount and does not repay the debt, the creditor has set a fairly low limit on the amount they may lose. However, the high interest rates also work in the favor of the creditor because it provides them with a greater profit when the student does not repay the entire debt immediately. Students who only make the minimum payment each month may wind up paying a great deal more than the original debt.
Students who do not want a credit card with a high interest rate may have other options available to them. Most college students are enjoying their first taste of freedom and most likely have not yet established a credit history. However, if they have a parent or guardian who is willing to be listed on a credit card application as a responsible party, the creditor will be much more likely to offer the student a favorable interest rate and a higher spending limit. This is because the existence of the parent or guardian on the application lowers the risk for the creditor. The responsible adult agrees to be ultimately responsible for timely repayments of any debts incurred. Some students may prefer to avoid this type of situation because it stifles their independence but others may enjoy this scenario because of the favorable terms. The downfall is if a student is responsible for payment without parental monitoring, he can damage his parent’s credit if not paid in a timely manner.
Credit cards are very appealing to college students who may need some assistance during certain times of year. For example at the start of each semester, students may be burdened with the cost of books, lab fees and other school supplies. Students may not be able to afford these necessities outright but they may be capable of repaying a credit card debt for these items over the course of the semester.
As previously discussed, many credit card companies are more than willing to offer a line of credit to students. There’s nothing wrong with this, but students should be careful to avoid allowing themselves to go into serious debt. It is acceptable to carry a small balance on the credit card to build up a high credit score, but incurring large debts and not repaying even the minimum amount may result in the account being turned over to collections. This can be damaging to the student’s credit score and may result in poor credit which may require repair.
There’s no reason responsible students shouldn’t own credit cards. Just remember, irresponsible credit habits can ruin your chances of purchasing a house or car later on in life. Try not to purchase items you can’t pay back right away and always remit payments promptly.
Remember, a little responsibility goes a long way.
