Thursday, February 17, 2011

Should College Students Have Credit Cards?

Should College Students Have Credit Cards?

Brian Jenkins, a member of the BrainTrack writing team, contributes feature articles that offer great advice for college students. For more information, check out BrainTrack's Facebook page.

Many college students see a credit card as a piece of plastic that let's them buy whatever they want. They don't think about the debt they're piling up. College students should realize that by using a credit card they're taking out a loan that has to be repaid. Also, people without an established credit history might pay the highest interest rates, and that group usually includes students.

Qualifying for a Credit Card

People under the age of 21 can't obtain a credit card unless they have an independent source of funds to pay the bills or a parent cosigns the application. The parent has to provide written permission before the credit limit can be raised.

If a parent cosigns the application, then they're jointly liable for any debts their child piles. If this happens, the parent's credit gets harmed along with their kid's if they don't pay the bills on time.

Problems with credit cards, including late or missed payments, stay in a person's report for seven years. A credit report is needed to buy a car or apply for an apartment lease. Also, many employers review a prospective employee's credit report.

Is your college student responsible enough to have a credit card? Will he damage his credit report by not making payments on time? One option is to make a deal with your kid that a credit card can only be used for emergencies.

Sallie Mae Report

Check out the following information before you cosign a credit card for your college student:

According to a 2009 report by Sallie Mae entitled "How Undergraduate Students Use Credit Cards":

  • College seniors graduate with an average credit card debt of over $4,100.
  • Almost one-third of undergraduates put college tuition on their credit card; an increase from 24 percent in 2004.
  • About 92 percent used credit cards to pay for school supplies, textbooks, and other direct education expenses.
  • 84 percent of undergraduates have at least one credit card. On average, students have 4.6 credit cards.
  • Many college students use credit cards to live beyond their means and more than three-quarters have incurred finance charges by carrying a monthly balance.
  • According to the survey, sixty percent of students were surprised at how high their balance had reached.
  • 40 percent stated that they charged items knowing they didn't have the money to pay the bill.
  • Just 17 percent stated they regularly paid off all credit cards each month.
  • 84 percent of undergraduates reported they need more education regarding financial management topics.

This report by Sallie Mae underscores the importance of parents educating their college students about using credit cards wisely.

Marie O'Malley, director of consumer research for Sallie Mae and author of this study, said, "too many students are at risk of overpaying for college by pulling out credit cards to pay for text books or even part of their tuition bill, instead of using less expensive financial aid to cover these items."

Reasons College Students Should Have a Credit Card

The length of a person's credit history is a factor in their credit score. If your child doesn't get a credit card until he's 21, it probably increases the cost of borrowing money to buy a car when he's 23 or so.

College students can use one or two credits card with a low credit limit to establish a credit history. However, students that take out student loans may actually begin their credit history at age 18.

Prepaid credit cards are a good idea for college students. However, they function more like debit cards and they won't help establish a good credit history.

College students should be aware that their credit record can have a lasting impact on their lives. Should you cosign a credit card application with your child? Your college student's financial maturity is an important factor when determining if they should have a credit card.

6 comments:

  1. My parents lived their entire lives without a credit card...I only got mine because the banks kept signing me up them...but if college students have c.c. or not is totally up to them as to what they do with them and...AND HOW THEY PAY FOR THEM WITHOUT Mommy and Daddy having to co-sign.

    It is not a necessity, let them work their way through college like I did and so many others before me. Bah Humbug!

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  2. I totally agree, Beverly! :)

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  3. I think it depends on the child. When I went off to school, my parents gave me an "emgergency" card. And I used it ONLY for emergencies --- one of them being a busted water pump in my car -- and my parents knew about the charge before I put it on there. Unfortunately, I was never taught the dangers of credit card use beyond the trust issues, and therefore, I got myself into trouble later in life.

    Thus far, my daughter has exhibited responsibility when I have given her my debit card and has always only swiped it for amounts I gave her permission for. She has complete access to our itunes account (linked up to my card), because frankly, I don't want to fool with it. In the four years she has never charged anything to it without permission.

    I think I will co-sign a small emergency card with her when she goes off to school. She will know without a doubt that one instance of abuse and the card will be "repossessed" by the Bank of Mom. I do feel that I have taught her better going forward than I was taught.

    But like I said, it really does depend on the child.

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  4. I ran up nearly $30K in debt as a college student paying only the minimums. NOT a good place to be at graduation. It took me till I was 30 to get out of that debt and damaged my credit while I was at it. If I had a college kid - I'd go with the debit account. Give them an emergency fund in there with the ability for them to add to the account.

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  5. I think it depends on the child. When I went off to school, my parents gave me an "emergency" card. And I used it ONLY for emergencies --- one of them being a busted water pump in my car -- and my parents knew about the charge before I put it on there.e.

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