| Love Don't Cost A Thing... But It Won't Build Your Credit History By: Megan Gearheart College means many things…moving into a dorm room, tackling challenging academics and starting the next phase of adulthood. It also marks the beginning of independent financial life. According to the Nellie Mae Foundation’s 2009 study, eighty-four percent of undergraduates reported owning at least one credit card and half of college students own four or more cards. Undergraduates college students carry notoriously high credit card balances. In fact, college seniors graduated with an average credit card debt of more than $4,100 and close to one fifth of seniors carried balances greater than $7,000. So how do students get these credit cards? Direct solicitations, such as postal mail offers, and email, are responsible for fifty-eight percent of sources for a student’s first card. The frequency of contact students have with credit card offers tempt individuals into accepting cards they might not be able to understand or use responsibly. Nellie Mae reports that forty percent of students surveyed said they had charged items knowing they didn’t have the money to pay the bill, and only seventeen percent of students said they regularly paid off all their card balances each month. Carl Martellino, Head of the Career Development Office at California’s Pomona College, conducts an annual personal finance seminar on campus. His advice for incoming college students? Wait. “When you decide to open a credit card, stick with one card. It will allow you to build your credit score.” He recommends owning at least one card with a low limit, thereby discouraging overspending. Martellino advises that a credit card can be helpful to building healthy credit. However, it will only be helpful if you follow a few basic rules. Martellino says to “try to pay it off each month, or keep a small balance for six months at a time.” A small balance will show creditors that you are able to pay off debt responsibly. It’s also important for those opening credit cards to be well informed on the process and workings of a credit card. “The best way to avoid falling to credit card marketing is by being an informed consumer,” said Dr. Franklin Potts, Associate Professor of finance at Baylor University in Texas. To better aid young people navigating the credit world, President Obama signed the Credit CARD Act in May of 2009. His goal was to foster an informed citizenry, and protect consumers. The CARD Act, which stands for Credit Card Accountability Responsibility and Disclosure, aims “to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.” Credit card companies have until February 22, 2010 to comply with the regulations set forth by the legislation. Changes will be made in three key areas: Credit for young consumers, college interaction with credit card companies and regulations regarding college students under twenty-one. Specifically, as of February 22, 2010, credit cards are banned for consumers under the age of 21 unless those individuals have adult co- signers or show proof they have the means to repay their debts. Until an individual turns twenty-one, prescreened credit card offers cannot be conveyed via mail or any other means. At the moment, some colleges and universities have contracts in place with credit card marketers. These contracts allow access to student and alumni contact information. The CARD Act will require full disclosure of the existence and details regarding their partnerships with marketers. This step will increase transparency between parents, students, and educational institutions. Finally, the new law bans free goods and services as incentives to sign up for credit cards on or near campuses at college-sponsored events. It is the hope that these changes will lead to a greater understanding among students that using credit cards is not as simple as it appears. Increased understanding will also increase responsibility among users and hopefully lead to less debt for consumers. For more information on building credit and healthy financial habits, the financial firm Charles Schwab offers the following link with general advice on increasing a credit score:http://www.schwab. com/public/schwab/research_strategies/market_insight/financial_goals/ financial_planning/boost_your_credit_score.html?cmsid=P- 3062245&lvl1=research_strategies&lvl2=market_insight Also consult campus administrators for other resources at school or within the community. With the freedom offered in college life comes great responsibility. Financial decisions made by students during those four years will determine the rest of their fiscal lives. Use that longevity for a head start in positive habits. Money may not buy happiness, but debt is no fun either. Protect yourself by making informed choices. |
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