Student Credit Cards 101

Posted on December 15, 2007
Filed Under Credit |

Almost all students have and use student credit cards. Some of the students use them wisely and build for them an early credit history but others accumulate lots of debts that would have to be paid off once the student life is over. Students that have a credit card should learn how to take charge and manage their own finances as soon as possible, because the time between teen years and adulthood is very short. So, the sooner a student starts managing his own financial matters the sooner he will develop useful financial skills. Student credit cards are no longer a privilege for wealthy students but now are considered a social entitlement.

A student can very easily obtain a student credit card. Offers for student credit cards are everywhere students are: in campuses, at social functions, in their mail boxes, in bookstores, etc. That is because credit companies consider students to be good customers. First of all they are loyal; once a student obtains a credit card, he is likely to keep this particular card for years to come and instead of getting other new cards they upgrade it every time they fill the need to do it. Nowadays, the conditions to obtain a student credit card are very weak, so more and more students have access to them even though they don’t have a steady source of income. And this is a second reason why credit card companies offer more and more credit cards to students: they usually can’t repay their debts in time. And this is what credit cards companies rely on; they make lots of money from late payment penalties, interest fees on unpaid credit card balances, annual fees and more. So, students that don’t repay their credit card balances in full each month are the best customers.

Every college freshman wants to have at least one credit card because it will help him very much during his college years; the student will be able to rent a car, buy books or concert tickets, provide himself help with medical or other emergencies and more. Apart from financial help during college years, student credit cards offer other types of help by building a credit history. Credit history is the record of all that happens in your financial situation throughout the years. Credit scoring is a system based on all that happens to your accounts: late payments, bill paying history, number and type of accounts, outstanding debts and more. If the credit history and scoring are good the student will more easily obtain a house or a car loan, certain types of financial jobs, insurance premiums and more other benefits. So, the student must pay his bills in full or in time, in order to benefit later of their first years of credit history.

The most difficult thing for a student is to choose from the large number of student credit card offers. And the best way for a student to choose a credit card for himself is to talk to other students and get advice from the ones that already have and use a credit card and compare credit card offers online. Before choosing a credit card, the student must be aware of the card’s terms of use. Most student that already have a credit card recommend for the others a card with no annual fee and the option to limit the amount to be spent. And apart from these safety measures, wise students that think of their financial future often take a personal finance course in order to learn all kinds of financial management skills that will help them throughout their entire life.

Students must be very careful when using their student credit cards; they always have to be cautious about the amount charged on the credit card and, at the end of the month, to review the amount of interest they have to pay monthly. It is also recommendable that the credit card balance to be paid as soon as received. If for some reason the balances cannot be paid in full, the student must pay at least the minimum payment required. If problems with paying the credit card balances appear, the student must ask help from a financial counselor that will always have a solution for him as student loan repayments are much more flexible than consumer loan repayments. And another thing students must be careful about is identity theft; the credit card or social security numbers should not be given to anybody over the phone. These are important information that cannot get into the hands of wrong people because will very much damage the credit history. So, we can consider that it is best for students to have a credit card starting with their freshman college years because, if used wisely, the credit card history built in this period will very much help them throughout their entire life.

This article has been provided courtesy of Creditor Web. Creditor Web offers great credit card articles available for reprint and other tools to help you search and compare credit card offers.

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Student Credit Cards 101

Posted on November 30, 2006
Filed Under Credit |

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?

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.

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