Credit Card Help for Students
Students, especially at college or university, are a prime target for the credit card companies. In many cases they're getting a taste of their first true independence, and they are developing consumer habits that will be with them for the rest of their life. The credit card companies are well aware of this, and they want to get students into the habit of spending money on credit as early as possible.
If you visit any college or university campus, you'll see many ads and brochures offering a range of different credit cards. These cards may require a parent to co-sign but in many cases they won't as long as the student is employed, even part-time.
There are both advantages and disadvantages to these credit card offers for students. First let's look at some of the advantages.
Using a credit card responsibly will establish a credit rating for the student. This is extremely helpful when applying for financing for a major purchase such as a car or a home. Developing this credit score through the years as a student will give them a head-start when they get out into the "real world" after finishing school.
A credit card can also help them to develop good money habits, provided they are responsible with the credit cards. Getting into the habit of payment of the balance in full every month is invaluable, as is understanding how credit can hurt a person's credit if used poorly.
Finally, a credit card provides convenience and if necessary, an source of emergency funds that can be accessed on short notice.
There are many potential disadvantages, however. The most serious of which is developing poor financial habits. Credit cards make it very easy to buy things that we couldn't otherwise afford. When combined with the sudden independence of many students, it can be a prescription for problems.
If a person develops bad spending habits when they first get a credit card, they can be extremely difficult to change as they get older. As they gain more credit, it can snowball and create serious debt problems down the road. (These credit card tips come from experience - I got my first credit card when I was about 18 and in university and the debt caught up with me when I was about 30 years old.)
Student credit cards can also become a liability for the parents if they were required to cosign. If the student is unable to repay the debt on the card, it could become the parent's responsibility if they want to avoid a black mark on their credit report.
Because many students use student loans to pay for their schooling, supplementing that money by using a credit card can leave them with an even larger debt to repay after they graduate. It's important that the card not be used to pay for necessary expenses unless the balance can be paid every month. If this is necessary, it may be that the student loan needs to be increased, which will cost less in interest in the long run than using the credit card will.
Student credit cards can be a helpful tool and a good way to learn financial responsibility, but it's important that the students understand what they're getting into. The credit card companies certainly aren't going to tell them - they'd love another lifetime credit junkie helping to increase their bottom line.