The college experience is a time for getting an education, broadening mental horizons, meeting new people and creating some lifelong friendships. It is also a time when young people are out on their own for the first time are bombarded with tempting offers for free credit cards from many different companies. Without understanding how credit works and the pitfalls awaiting them, many students also acquire long-term debt along with their undergraduate degree.
Many students fall into the credit companies’ enticing trap of easily obtaining a seemingly easy-to-use credit card and running up charges to a such a large amount that they cannot make timely payments. The credit scoring software company of Fair Isaac and Company (FICO) realizes that many students accept too many credit cards and open too many accounts, quickly becoming overextended financially. College student credit problems have the future potential of low credit scores. These will affect their ability to obtain a mortgage or other loan after graduation.
The irony of the advantages taken by credit card companies against students is that they are creating unprecedented numbers of students who go out into the world with already risky credit who will have a hard time qualifying for future loans and mortgages. These companies know that they must get student addicted to the use of credit cards at a young age. The best solution for keeping students out of this debt trap is to destroy all credit card offers and use a debit card responsibly instead.
A better type of credit cards for college students are “smart” or “rechargeable” credit cards preloaded with a fixed amount of money available in credit. When depleted, parents decide whether to recharge the card or not. The student begins to build good credit through the college years while avoiding the credit card trap. Building this long-term payment and credit history will serve the student well when it comes time to apply for a mortgage.
Parents and teachers need to teach students the proper uses and pitfalls of credit before they leave for college. Explain hidden charges they know nothing about, such as late payment fees and the trap of making only minimum payments. Tell them that erasing credit card debt is really hard. Instruct them to use the card you provide for them only for true emergencies. (If you are not bleeding or starving, it is not an emergency.) Point out the specific consequences they must face if they charge more than they can pay.
Since these students are smart enough to attend college, they are aware enough to understand that some self-control over their spending now can mean success or failure obtaining their own home in the future.