Sunday, November 29th, 2015

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How much do you really know about credit?

The word “free” will make most people sit up and pay attention, and college students are certainly no exception. So when the credit card companies make their appearance on campus and handout college apparel, tickets and other hard-to-resist items free-of-charge, students walk away with an armful of goodies in one hand and a stack of credit cards in the other. But what many undergrads don’t know is that as the inventory of free stuff is going up; their credit scores are quickly plummeting.

According to the Credit-ED/Harris Interactive Financial Literacy Survey, 40% of students don’t realize that opening several credit cards hurts their credit score. But since 72% of students have never requested a copy of their credit report, most students would have no idea it has an impact. In December of 2003, President Bush signed the Fair and Accurate Credit Transactions Act (FACTA), which entitles every American to one free credit report each year. By taking advantage of this free service, students can stay up-to-date on their credit rating and can gauge how their spending habits are affecting their credit.

This is just one piece of information students are unaware of when it comes to understanding credit, but Citi is looking to change that with their new Credit-ED Challenge. “We feel from our research that the credit education is needed, so we are trying to fill that need,” says Jeff Schumacher, senior vice president at Citi Cards.

When students were asked where they obtained information about credit, two out of three students who were surveyed said they learned from their parents. “Although I think parents are doing a good job, I think that more is needed,” says Schumacher. “So that is why we created the site, www.students.usecreditwisely.com, so both students and parents can go on together to get the latest information and do an even better job.”

Citi’s website hosts the Credit-ED Challenge tutorial, which is a program that students can go through to become credit savvy. Unlike a normal college course that takes several months to complete, Citi’s tutorial can be completed in less than two hours.

The tutorial steps you through four separate modules with each highlighting a different topic – thinking about money, budgeting, credit management and the importance of a credit history. You are introduced to each module with a short video clip and then explore deeper by completing exercises that pertain to that topic. Each module will take approximately 20 minutes and can be taken separate of the other modules, which means you don’t have to allot two hours out of your busy schedule to complete the tutorial all at once. Once you feel comfortable with the new information you can complete the Credit-ED Challege certification quiz. You’ve officially passed the tutorial when you receive a 70% or higher on your quiz and you’ll have a certificate from Citi to prove it.

The information you’ll receive from the tutorial is very basic and serves as a good foundation on the subject, but acing the Credit-ED Challenge won’t put you on the fast track to financial freedom if you don’t apply what you learn.

Some students may claim to know how to use their credit cards wisely, but according to the Credit-ED survey the average student will graduate with $780 of credit card debt.

Elijah Pittman, senior general manager for California Pizza Kitchen, certainly exceeded the average when he left college with $10,000 in credit card debt. “I ended up getting my first credit card because they were giving away free t-shirts,” says Pittman. “I ended up having a credit card for just about every store I shopped at. I mean $15 a month was all I had to pay to live whatever lifestyle I wanted.”

But that lifestyle certainly caught up with him when he began thinking about purchasing a home and realized it would never happen if he didn’t clean up his credit. After defaulting on his credit cards, dealing with collection agencies, and paying off settlements, Pittman completely changed the way he looked at credit cards. “I treat them like debit cards,” he says.” “I use them because they build credit and offer benefits and protection, but I only put as much on my credit card as I have in cash.”

Today, Pittman’s credit rating is nearly perfect but it took about five years of maintaining good credit to be able to apply for a credit card or loan and receive fair interest rates. “Unfortunately I didn’t know anything about using a credit card when I got mine, I had to learn by doing it myself,” he says.

© 2008, Young Money Media, LLC. All rights reserved.

College Students and Credit

  • 90% recognize and value good credit as an important financial goal
  • 80% feel knowledgeable enough to manage their finances after graduation
  • 72% of upperclassmen have not requested a copy of their credit report
  • 32% have already missed or been late on a credit card payment
  • 24% have written a check that bounced
  • 52% believe their spending habits now will NOT impact their credit report in the future
  • 37% think opening unnecessary, new credit cards will NOT lower their credit score
  • 28% do NOT save money for future purchases

Source: 2005 Credit-ED/Harris Interactive Financial Literacy Survey

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