You’ve probably heard some horrifying statistics and stories about college students and credit card debt. In 2000, 78 percent of undergraduate students had credit cards and the average debt on them was $2,748, according to Nellie Mae, a student loan agency. In addition, one out of ten undergraduates owed more than $7,000.
The stories are equally worrisome. Tales abound of parents bailing out their kids from credit-card debt amassed during college. There are also innumerable accounts of students having to cut back to part-time status or drop out of school altogether to make enough money to pay off their balances. Then there are the much-publicized stories about students committing suicide over their credit-card debt. In some cases, these students owed only several thousand dollars
Therefore, you may have decided that it is not worth the risk to get a credit card during college. You are going to wait until you have graduated, are more mature, and have a full-time job before you get your first credit card. Although this may seem like a wise decision, it may hurt you in the short run.
Jerry’s parents grilled him about the dangers of credit cards. They had reason to worry, because Jerry’s older sister Paula abused credit cards while she was in school. Her parents ended up bailing Paula out of credit-card debt when they discovered that she owed $5,000 after only her freshman year. They were determined not to repeat this scenario with Jerry.
Jerry listened to his parents’ lectures and managed to resist all the credit card offers he routinely saw on campus. Although it was hard on the occasions when his friends would just whip out their credit cards to pay for clothes or drinks at the bar, Jerry knew he had made the right decision when he started to see many of them get into serious debt. Too many of his friends ended up in the same situation his sister Paula had found herself in.
Once Jerry had graduated, he started working full-time and promptly opened a checking and savings account. At the same time he applied for his new bank’s credit card; he was declined. The reason for being declined was his lack of a revolving credit history. Other than his student loans, Jerry’s credit report was clean.
In disbelief, Jerry decided to try and obtain other credit offers. He picked up credit card applications wherever he saw them–at the dry cleaners, his gym, at restaurants. He filled out the applications and waited. Unbelievably, he was rejected for every credit card that he applied for.
Jerry couldn’t understand what he had done wrong. In fact, he thought he had done everything right. He had no credit problems, hadn’t gotten into trouble with spending money and had a respectable job. In spite of all this, he was being penalized for his lack of credit. It was a catch-22 situation. In the world of credit, if you have no credit history you can’t get a credit card. But you need a credit card in order to build a credit history. Jerry had encountered the same problem in trying to get his first job.
To add insult to injury, Jerry found himself having to pay deposits to his cell phone company ($400) and to his utility company ($100) because he was a first-time user with no credit history. It was turning out to be quite costly not having a credit card before graduation.
Adding to the monetary costs were the costs to his bruised ego. He was bound and determined to be independent of his parents, only to find that he needed their help. Jerry eventually gave in and asked his parents to co-sign on a credit card for him. For Jerry this was more humiliating than being rejected by the credit card companies.
Since not having a credit history makes post-college life more complicated and more expensive, it is worth considering obtaining a credit card during your college years. It is usually easy to get one while you are a college student, regardless of whether you have a job or reliable source of income
Once you get one, however, it is important to remember the rules of wise credit card usage. There is a middle ground in which students can build a credit history in college, have the convenience of using credit instead of cash for purchases and emergencies, and still not run up a lot of debt. The bottom line is that you can work out a win-win situation when it comes to credit cards.
© 2003, Dara Duguay