Jess got caught in the credit card trap during her first year in college. "I started getting offers right after high school, and I felt pretty special that they wanted me as a customer. The first card worked really great, so I got three others during my first year on campus. Then I started taking out cash advances. But the bills kept coming, and I didnt know how I was going to pay them. My parents were pretty upset. We had talked a little bit about credit cards before I left home, but it really didnt sink in."
Jess is not alone. Credit-mania has hit college campuses across the nation in a big way. Card issuers flock to registration tables in student unions across the country at the beginning of fall semester. For signing up, students can get a variety of freebies, everything from airline discounts to T-shirts or candy bars. Consumer groups are criticizing card issuers aggressive tactics to get students hooked on credit before these young adults know how to use it wisely.
Last year the Consumer Federation of America released a study by Georgetown University sociologist Robert Manning. The study indicated that some students are forced to cut back on their courses or spend more time working to pay off their credit card debt. In extreme cases, some college students have committed suicide from feeling overwhelmed by credit card debt.
How can young adults with no job and no bill-paying history get credit cards? The industry admits that their standards are relaxed for college students because card issuers want to be the first card into their wallet. Research shows that consumers are more loyal to that first credit card and hold onto it for an average of 15 years. Further, card issuers contend that college students are no greater risk than the general public for defaulting on their payments. However, the industry does not track who actually pays the bill. Too often, parents are bailing out students.
Some credit card issuers do not quote an annual percentage rate until they know the applicants credit history. For example, one issuer promotes tiered rates as low as 7.99 percent and as high as 20.24 percent. People with excellent bill-
paying histories get the best rates, and those with poorer (or no) payment histories pay significantly higher interest.
What Credit Card Issuers Dont Tell You
There are many more hidden secrets in the world of credit cards.
Students frequently opt to pay only the minimum payment stated. If you have a balance of $1,800 with an interest rate of 18 percent and you only pay the minimum due each month, it will take you 22 years to pay the balance, and you will pay an additional $3,800 in interest alone. So your $1,800 purchase has cost $5,600. This assumes that no more debt is added on the card during those 22 years.
The Impact of Poor Credit History
Why should parents and students care about credit card mania on campuses? The ramifications of a poor credit history on a students financial future are significant.
If a student doesnt pay bills on time, that poor payment history will be included in a credit history for up to seven years. As a result, the student may not be approved for an apartment, may not get a job offer, may not qualify for a car loan or mortgage, and may be denied for certain insurance coverage.
Warning Signs of Credit Trouble
* Not knowing how much is owed.
* Charging daily living expenses on a credit card.
* Having little or no savings for emergencies.
* Being able to pay only the minimum due each month.
* Using one credit card to pay on another credit card.
* Using cash advances to pay bills.
* Getting calls from creditors asking for payment.
* Avoiding creditors, ignoring bills, or not opening bills.
By Jan Garkey,
family resource management specialist,