Student Credit Cards 101

If you're a college student, you probably already have a credit card. If not, you may have plans to get one or more soon. So why should you read on?

• Because financial debt is one of the main reasons that many students end up dropping out of college.

• Because your college years can be some of your most memorable-and some of your most costly. They don't, however, have to be the beginning of an adult life strapped with debt.

• Although you may still feel in limbo between your teen years and adulthood, it's time to take charge of your finances and manage them as an adult. The sooner you do, the sooner you'll be able to start saving and spending your own money.

For those new to credit cards and for others who know all about credit, let's go back to the basics.

Why do credit card companies court college students?

It's obvious by the friendly representatives who offer a free t-shirt or CD just for signing up in the student center. Or the applications slipped into bookstore bags. Or mail boxes crowded with card offers. Credit card companies want college students to carry their card.

Did you ever stop to wonder why? One reason is loyalty-once a person has a card in their wallet, they are likely to keep that particular card and its upgrades for years to come. Another reason: college students are good customers.

While this may seem ironic considering that most college students are without a steady source of income, Robert Manning, Ph.D., Professor in the College of Business at Rochester Institute of Technology and author of Credit Card Nation, says this is one example of how the credit card industry has changed radically in the past decade or so. "Previously, conservative rules deemed a good customer as one that paid their bills on time," he says. "Now, a good customer is one that can't repay their debt."

"Credit is no longer an earned privilege," continues Dr. Manning. "It's now considered a social entitlement, and the screening criteria (for card applicants) is weak."

Banks make money by charging annual fees, late payment penalties and interest fees on unpaid credit card balances. Therefore, card holders with revolving debt (those who do not pay their balances in full each month) are desirable. NellieMae.org illustrates this point beautifully through an example of a student with a credit card balance of $7,000 at an interest rate of 18.9%. If this student faithfully makes the minimum monthly payment of 3% or $25 ? whichever is higher, and does not charge anything else to the account, it will take more than 16 years and $7,173 in interest fees to repay the bill!

Additionally, Manning notes the banking industry has learned that college students will draw upon various sources of income to pay their debt-including student loans, money from part-time jobs, and as a last resort, many will ask a family member to supply the funds to get them out of debt.

How to make credit work for you, not against you

According to Nellie Mae, 81% of college freshman have at least one credit card. And for good reason. Credit cards enable online purchases-from text books to concert tickets, make it possible to rent a car, and help with medical emergencies or vehicle breakdowns. Used wisely, credit cards can be helpful throughout college, and can assist you in the development of financial management skills.

As soon as you get your first credit card or loan, you have entered the world of credit reports and scores. A credit report is compiled by credit bureaus and contains information about your identity and credit relationships, among other things. Credit scoring is a system that lenders use to help determine your 'credit worthiness.' Credit scores are based upon your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts.

It's vital to know that your credit score affects your ability to get loans, car loans, and home mortgages. Future jobs and insurance premiums can also be influenced by your credit score. By paying your bills in full or in a timely manner, a credit card will help you establish a good credit score. Late payment or no payment will help you earn a poor credit score. For more information on credit reports and scores and how they affect you, check out CardRatings.com.

Developing a new view about credit

Mary Ann Campbell, CFP, founder of MoneyMagic.com and a money educator, cites unrealistic expectations as a major reason for high student debt.

Campbell, who teaches personal finance courses, says "Many students' expectations of their earning potential after college far exceeds what their actual income will be." She notes that some students use their credit cards with abandon during college, planning to pay off their debt when they land that great job after college. Indeed, some students forget that in order to get to the top of the career ladder, there are a few rungs, i.e., less paying jobs, they have to climb first. And the expense of starting a new job and life on your own can just add to existing debt.

Manning's website, CreditCardNation.com, contains a great resource for students seeking a more realistic view of the first few years after college. Using the 'Budget Estimator,' a module designed by Manning, students can identify an average yearly or monthly starting salary for jobs in their particular major. The program automatically figures in estimates for taxes and social security payments. Students can then plug in expenses for housing, car payments, utilities, food, insurance, telephone and internet bills, clothing, credit card bills, student loan payments, and entertainment, etc. The module lets you know when you have spent more money than you make, and allows you to adjust payments as necessary until you get the hang of how your money is best distributed.

Students that seem to have the most credit woes? Those who believe their standard of living during and after college should not vary from when they lived at home on their parents' income. Cable television, cell phones with cameras, and new cars become 'necessities' instead of nice extras.

Advice to grow on

When it comes to credit cards, students have great advice for other students. Heather, a college junior from Arkansas, recommends getting one card with a low limit. "This limits the amount of credit you have access to and therefore removes the temptation to spend more than you have or more than you can pay off immediately," she says.

Another student recommends selectivity. "Don't sign up for a card that charges an annual fee to use it, and read the terms of the card before applying. You wouldn't believe how many people don't know what an APR rate is." For more information on finding the best rated cards, check out CardRatings.com. You can read reviews of cards from other students and get the lowdown on perks of various credit cards.

Campbell has three recommendations for students: The first is open communication. Campbell says students who are educated about financial matters seem to have a better overall attitude regarding credit cards. Students should find a trusted source to talk openly with about money issues. Second, students should switch from spending behaviors (such as shopping) to activities that help you achieve the same feeling of gratification or reward, such as intramurals, exercise or campus organizations.

Last, but certainly not least, enroll in a personal finance course as soon as your schedule allows. Says Campbell, "If it's not required coursework, take it as an elective. You will learn a set of life skills that will not only help you right now, but also after college and for the rest of your life."

About The Author

Rebecca Lindsey is a Senior Staff Writer for http://www.CardRatings.com. She began writing articles about consumer credit issues for http://www.CardRatings.com in September 2000.

---

What Are the Most Common Ways to Commit Identity Theft or Fraud?

It's the number one source of consumer complaints at the Federal Trade Commission (FTC), and unfortunately, it's one of the simplest crimes to commit. Identity theft involves... Read More

How To Choose Your Credit Card Application

The articles and tips provided on this site are intended to help you access credit card offers that suit your lifestyle. By providing you with some basic... Read More

Why Americans Find Predatory Lending Offensive

"Menis - the author translates as "indignant rage" - It is the kind of rage arising from social betrayal that impairs a person's dignity through violation of... Read More

Credit Card Shocker

Have you ever looked at your credit card statement? I'm not talking about just making sure that all the transactions are correct. I'm talking about looking at... Read More

Using Credit Cards Wisely

"I think money was stolen from my card" or "I might have blocked my card in the ATM" - these are frequent problems that bank customer-support officers... Read More

Figuring Out the Ever Nebulous Numbers Called Credit Scores

Credit Score FactorsThe information contained on our credit reports affect every aspect of our lives; including employment, insurance, and even interest rates (mortgage, credit cards, automobiles, etc.).... Read More

What is Credit Repair and How Can It Help You?

There are millions of consumer credit reports on file from mainly three major reporting bureaus which include Trans Union, Experian, and Equifax. These credit gathering agencies store... Read More

Credit Scores and Loan Applications

Keep Your Credit History Clean - Remove A Negative Credit Record From Your Credit ReportIt can make a difference of up to 18% in loan repayment costs.... Read More

Trying to Land a Job? Poor Credit Scores May Hurt Your Chances

Many employers are now looking at an applicant's credit report for hiring purposes. During an interview process a potential employer may request your written consent to access... Read More

How To Survive In A Plastic World, Qualifying For Credit Card

Let's face it, having credit is no longer a choice. "Don't leave home without it" is more like "can't buy a home without it." Your credit now... Read More

Repairing Your Credit Score and Clearing Derogatory Marks on Your Credit Report

Raising your credit score can be a fairly simple and straightforward process unless you have derogatory marks that need to be disputed (which will be explained below).The... Read More

Credit Cards -- What You Should Know

There are a lot of questions about using credit cards. Here's some important points for you:A quick look around on the Internet this morning shows that more... Read More

When You Are Eligible For A Free Credit Report

By Federal law, you are entitled to one free credit report per year directly from a credit-reporting agency only if you certify that:1. You are unemployed and... Read More

Triple AAA in 30 Days

Have you ever wonder about how to get good credit with spending alot of money. Well here is a little secret I used to get my credit... Read More

Credit Report ? How to Improve Your Credit Score

One of the great mysteries of life is how the three major credit bureaus (Experian, Equifax, and Trans Union) score credit. They all have secret statistical formulas... Read More

Minimum Credit Card Payments to Rise

For years, major credit card companies have allowed cardholders to make minimum payments of 2% of the outstanding balances on their credit cards. Having customers pay the... Read More

All You Wanted to Know of Bad Credit

Martin Henderson is in a fix these days. Because of his failure to repay a loan he had taken a few years back, he has been adjudged... Read More

Dont Fall For A Scheme When Trying To Rebuild Your Credit History

For people with a spotty credit history or bad credit, getting approved for a standard credit card can be difficult, if not impossible.There are a number of... Read More

Credit Score: The Brightest Feather In Your Financial Cap

Credit scores are the most important aspect that determines your financial future. Carrying a good credit score is an asset and can pave your future towards greener... Read More

Building Your Credit History

Today, credit is an indispensable part of our lives. In order to get the things you need, such as a home or a car, you have to... Read More

Building Good Business Credit After Bad Credit

Can you establish good business credit if you have bad personal credit? The answer is yes...but with a few caveats.Business credit reports and personal credit reports are... Read More

Bad Debt Recovery

Bad Debt IdentificationIdentifying bad debt is not as easy as it sounds. But the earlier it is done, the better are chances of recovering it. Here are... Read More

How to Get Credit Reporting Agencies to Help You

The process of clearing credit can be laborious and frustrating. Understanding your rights empowers you and saves you time and effort. By employing the following tips, you... Read More

10 Dirty Tricks Credit Card Companies Play

The credit card companies make billions each year in legitimate interest charges and fees, but are under constant pressure from the shareholders to increase their earnings. To... Read More

Free Credit Reports: From The 3 Major Credit Bureaus!

Get your credit report online for FREE. Many financial advisors suggest that you periodically review your credit report for inaccuracies or omissions.This could be especially important if... Read More

5 Steps You Can Take to Get Paid!

There are always some companies that have past due invoices and can't seem to get them paid. They might be quietly waiting to get paid not wanting... Read More