The Life-long Price of a Student Credit Card

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Posted Sun, Feb 10, 2013

RACKING UP GREAT DEBT: Banks traditionally give college students credit cards with a $1,000 limit — a lot of money for someone who is also saddled with student loans. [Photo by Ashley Hattle]

DENVER — When credit cards first arrived, it was difficult for college students to obtain one. Parents would have to apply several times to finally be approved, and the bank would only approve applicants they felt had the means to pay them back.

Nowadays getting a credit card is very different. Students graduating from high school and beginning their college careers are immediately targeted by credit card agencies. From major banks to shopping malls, many creditors are desperate to give young adults thousands of dollars in unsecured credit setting many students up to default on their cards.

BUILDING GOOD CREDIT

The process of creating and developing a good credit score is sometimes difficult for consumers to understand. In order to obtain a good credit score, a credit card must be activated and kept in good standing. However, if the credit card balance is paid off monthly, it does not help the consumer’s credit score.

To create a good credit rating, consumers must have two to three credit cards that are kept at half the maximum limit. This proves to the creditor that the consumer is responsible to use a credit card without maxing it out, and they are able to make regular payments to keep it at a consistent balance. That is ideal for the credit card owner though, not the bank. Because the bank makes money off the high interest their credit cards generate.

Financial experts agree that even if an individual is able to pay the minimum payment, it would take more than 12 years and $1,115 in interest to pay off a $1,000 credit card balance with an 18 percent annual rate.

HERE’S HOW IT WORKS

A bank gives a college student a credit card with a $1,000 limit, which is a lot of money for someone who is also taking out student loans. That student maxes out the credit card and then begins making payments; however, the balance is so high that the payments are only paying off the interest — insuring that the bank makes a maximum profit.

Then after a few months of the student only paying interest, the bank ups the credit limit to $5,000, so the student can max out the card again and make larger interest payments. This cycle can go on for many years past college graduation. However, students armed excellent credit management information are able to establish good credit and steer clear of the credit card yoke.

CREDIT CARD HANGOVER: Many banks are desperate to give young adults credit — setting up students to default on payments. [Photo by Ashley Hattle]

Financial columnist Gordon Putman underlines the fact that the average undergrad carries $2,500 in credit card debt, and when they graduate from college they begin their new lives with debt that they cannot pay.

“When I was 19, US Bank gave me a $1,000 credit card that jumped to a $5,000 limit after a while, I had to call to put it lower,” said Metropolitan State University (MSU) Alumni, Katherine Vail.

Getting a credit card with a limit of $1,000 or higher is too easy for someone who is between the ages of 18-24 to obtain. Students sign up for them thinking it’s so wonderful they can finally afford everything they need, but the cost comes later and will hurt more than the wallet or purse-strings.

MIRED IN DEBT

After college most graduates will buy a car or a home, but buying those things requires a good credit score. However, because of unethical lending practices by major creditors, most graduates won’t be able to afford a new house or car without paying more interest.

“As soon as I turned 18 I was allowed $1,000 on a credit card!” LeeAnna Duarte said, an MSU Senior. “And when I first went to Front Range Community College (FRCC) I was offered more than once credit cards with a limit over $1,000. I think it’s stupid! That’s why so many college students have bad credit. You should be allowed maybe $500 and once you are consistently paying it off, they can go up on your limit.”

This is how banks expect to make money– lending money to students who are likely to rack up charges at a bar, instead of lending money to someone with a business plan and a way to pay them back. An 18-year-old student with zero credit is most likely to get a higher credit limit than a 40-year-old man with decent credit starting a business.

Putman says most college students are responsible and use credit wisely. However, those without any financial wherewithal find it difficult to change their spending habits, and that’s why it’s so important that parents speak to their children about money management. Putman says, the key to keeping college students out of credit card debt is to teach them money management skills before handing them a credit card.

How to raise your credit score:

1.   Pay your monthly bills on time

2.   Have 2-3 open credit cards that are kept at the median balance.

3.   Check your credit score once a year.

4. Choose a credit card with a low interest rate.

5. Avoid going over the limit.

6. Try to use your credit card only for what you can afford.

*You are entitled to one free credit report per year.

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Ashley Hattle

About Ashley Hattle

Ashley Hattle is a senior at Metropolitan State University (MSU). In high school, Hattle worked for the school newspaper, The Blazer, as the Executive Photo Editor and Lifestyles Editor. After high school she pursued a career in photography and attended the Art Institute of Colorado. After the Art Institute she quickly began working for a photography company in Denver. Through working as a photographer in Denver she re-found her love of journalism and has been a magazine journalism major at MSU since 2010. Hattle hopes to work as a journalist and photographer after graduation in May 2014.

View all posts by Ashley Hattle

11 Responses to “The Life-long Price of a Student Credit Card”

  1. Davy Says:

    Very informative story! Great job using sub-headings!

    Reply

  2. Grace Says:

    Loved the info in this story! Keeps me informed on how not to get swindled, so thanks! Also, I liked the way the story was broken up under the subheadings, kept things fresh and easy to follow. Nicely done!

    Reply

  3. Andrew Says:

    I wrote a story about student loans and it’s ridiculous how easy it is for students to fall in debt between the two. I like the background information and the added “How to raise your credit score” section, its very aplicalbe. The pictures are pretty solid.

    Reply

  4. Cassandra Ballard Says:

    This is a very good story. My only question is, where would someone go to get a free credit score without ending up with a scam?

    Reply

  5. Ted Heron Says:

    I really liked this story. It is informative and well organized. The only error I saw while reading was a missing “with” in the last sentence of the second paragraph under ‘How it Works’.

    Reply

  6. Aaron Lambert Says:

    I learned a lot reading this!! The sub-heads did a nice job of dividing up the story into more appetizing chunks.

    Reply

  7. J.R. Johnson Says:

    There’s lots of useful information in this article. I’m glad I was able to learn a few things to look out for. Nice job!

    Reply

  8. Austin Says:

    Not only is this relevant to the student population but very informative and helpful. Thanks!

    Reply

  9. Emily Pennetti Says:

    Great! Interesting to see what the credit card companies look for. Very informative

    Reply

  10. Maureen Says:

    Interesting story. Well written and very informative. However, I heard people talking about this as a story idea a year ago, so maybe it’s a little outdated.

    Reply

  11. SL Alderton Says:

    There are some pretty shocking facts in here that I didn’t know about. The average student is $2500 in credit card debt? Wow! The story’s a bit wordy, but the information is very helpful, especially at the end when you talk about how to raise your credit score.

    Reply

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