Credit Cards and Students: The Good, The Bad and The Ugly
The student market is now one of the most profitable for the credit card industry as a whole. This is due mostly to the fact that many students only pay the minimum due each month, are often late with payments and tend to use cash advances more than typical consumers. All these activities represent huge fees and profit centers for the credit card companies that know if a student falls behind in payments that in most circumstances the parents will jump in and take care of the debt.
Making the right choices with your first credit card can be one of the items that help you build a solid financial future. We’ve broken down the areas of credit card usage by students by “The Good, The Bad and The Ugly”.
The Good
Students need to start building a credit history early so that when they enter the workforce they have a solid credit picture behind them to help them get an apartment, a car and a good job. By using credit cards wisely early on they will find that they can build a credit profile quickly that will help them throughout their entire life.
Students should always know that one of the bills that must be paid each month, without hesitation, is the credit card bill. One of the best things they can do is to keep the credit card out of their wallet and use it for only emergencies. By avoiding the temptation to use it to buy gas, movie tickets or other items they will be less likely to run it above its limit or build up a balance that cannot easily be paid off.
One tip that many banks offer to first-time checking customers is that they should obtain and use a debit card for a period of time as a precursor to getting a credit card. A debit card acts exactly like a credit card, except that the money comes straight out of your available balance and you typically cannot exceed your available balance.
The Bad
Unfortunately, credit card companies target students precisely because they know they are not good at money management and they will generate huge profits for them in late fees and other surcharges. Many times a credit card company will re-sell its customer list of students to other credit card companies who will issue them cards without requiring a fixed source of income or other assets.
Late fees and over-the-limit fees can quickly add up to $100 or more each month that you are over your limit or make a payment late. In a typical year the credit card issuer can earn over $1,200 on your account – not to mention the money they earn thanks to interest on your balance. Once you fall behind many people, especially students, find it very difficult to get caught up again without making major financial sacrifices.
The Ugly
Of course, with late payments and other fees students are damaging their credit rating. Every late payment goes on their credit report, and can paint a very bad picture for the student when they go to obtain a loan or participate in another financial transaction. What’s worse, if the credit card company closes the account and turns it over to a collection department their credit score can suffer an even greater hit. Once an account is closed by the credit issuer it becomes very difficult to obtain credit from any other source. After all, if they didn’t pay the first creditor why should the second creditor believe they will pay them?
A credit report follows you around for years after the original debt may have been charged off or paid off. A bad mark can stay on your credit report for 7 years – long after you have graduated from college. It makes it difficult to get the best interest rates or terms, and in some cases can bar you from getting credit at all.
Learn more about student credit at http://www.studentloansdot.com.
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