by Nune Gazdhyan
Features Editor
Credit cards are easy to get and easy to run up. They are the fastest growing type of consumer loan. In this increasing competitive market, banks and other credit card issuers are eager to give credit to college students regardless of income and credit history.
While credit cards help students build good credit history, they can also have negative results as students charge more than they can afford. Incurring credit card debt and carrying it from month to month at high interest rates can quickly accumulate a large debt that can take years to repay.
“Many students don’t realize that credit cards are not free money. They’re small loans which you’re committed to paying back,” said Daniel Peña, college outreach coordinator from Consumer Credit Counseling Service.
According to a report by the United States Public Interest Research Group, more than one quarter of all students reported paying late on a credit card at least once in the last two years. More than a quarter also reported using cash advances to pay their on- going debts.
“If you think you’re in trouble you should check your credit report,” said Peña. “Also every time you sign [a credit card application] you authorize for someone to run a check on your credit report.”
He said students should avoid signing up for credit cards just to receive free stuff such as T-shirts and mugs, because every time an application is submitted it is flagged on the person’s credit report which labels the person as being over-extended. This is not a good sign on a credit report because it lets companies know that an individual is too risky and has potential of overspending without having the funds to repay.
“It’s [credit card debt] the worst thing you can ever do, because you kind of get into a never-ending hole and you can’t get out of it,” said junior Beckie Banta who currently has a Mastercard and several department store credit cards.
“My rule of thumb is don’t have more of a credit limit than you can pay off in three months,” said Peña.
He also added that, “students shouldn’t be paying more than 20 percent of monthly income, and the total debt shouldn’t be more than 40 percent of overall income.”
Falling behind on credit card debt can often lead to poor credit history and classify the person as a higher-risk and higher-rate borrower, which will sever an individual’s chance of acquiring low-interest credit cards in the future.
“They come in handy, but they can kill you,” senior Kenny Fredieu said of credit cards. He added that he currently has a bad credit history due to the incurred debts on his credit cards.
Credit card companies love having customers who can only afford to pay the minimum monthly payment, because the companies profit from the interest accumulated on the consumer’s debt. It is always wise to pay debts in full or at least attempt to pay more than the minimum amount due, because the more money that is charged and not paid back in full, the more interest it will accumulate.
However, despite their risks, credit cards do have some advantages and can help in attaining a good credit history. They are also easier to carry than cash, although they are easier to steal and should be stored properly.
Also, some companies offer bonuses such as low introductory interest rates, no annual fees, extended warranties on some purchases, theft insurance, frequent flyer miles and interest-free grace periods.
But before rushing to fill out credit card applications, it is vital to consider the following factors:
Annual fee: Most student credit cards have no annual fee. If a card does have one, make sure that the company offers compensate for the charge.
Annual percentage rate (APR): Consider looking around and comparing APRs especially if there is a possibility that the card will be used constantly and will accumulate interest. The lower the APR, the better the deal.
Grace Period: Most credit cards offer 25 days of interest-free time period to give the customer the opportunity to pay the balance without a finance charge. But in order to take advantage of this the monthly payments must be paid in full.
Miscellaneous fees: Most credit cards also charge for late payments and for going over the set limit on the card.
Rewards: Depending on the spending habits, there are a few rewards that can be gained from credit card companies based on how much is spent.
Being credit wise is vital, and the United States Student Association and MasterCard International have put together a list entitled, “The Top 10 Things You Need to Know to be Credit Wise.” They encourage students to create a budget and know what they can afford. Pay bills on time. They encourage students to avoid charging items that they know they cannot pay for later. It is also vital to pay more than the minimum payment, if not the full payment, on time. Also, it is important to know the interest rate of the credit card, statement due date and credit limit, and be sure to notify credit card companies, in writing, before moving.
It is also important to keep in mind that a poor credit history can hurt one’s chances of renting an apartment, taking out loans, and in some instances affect a person’s chances of getting a job.
Peña also said an individual’s credit report can mean the difference between being accepted to graduate school or being denied. As more people are going to graduate schools, often admission staff has to decide between students; and if the students have the same grades and interests they might look at the credit report and the person with the best report will be accepted.
If credit card debt accumulates, seek assistance before it gets beyond control. The Consumer Credit Counseling Service offers free initial consultation to individuals in debt. It is able to help the individual consolidate debts, pay them off interest-free and still be able to maintain good credit history. Interested individuals can contact the service at (800) 947-3752. Also, the Debt Counselors of America at (800) 680-3328 or the National Foundation for Consumer Credit at (800) 388-2227 can be of assistance.
In a society that is credit-driven, it is important to know about all the options and responsibilities that come with credit cards before handing that shiny plastic to the cashier.
Nune Gazdhyan
