Oct 6, 2009

Credit Card for College Students: Curse or Blessing?

by Melinda Zosh

The average college senior’s debt is $20,000, and $3,000 of that debt comes from credit cards, according to Assistant Business Professor Robert Rencher. The large debts may be a reason that credit card companies are using caution.

“Students who graduate in May, for example, must pay off their debts in six months,” Rencher said. “They often have several thousand dollars worth of credit card debt, they’re looking for a job, and this is a real burden for students to manage all that.”

The new law isn’t necessarily a good or bad thing, but students should “exercise self-control to limit what they charge,” according to Rencher.

“A credit card is a payment mechanism, and once you buy on a credit card you’ve committed yourself to have money in the future,” Rencher said. “There’s also sometimes a very high interest rate, because when you use a credit card, you’re renting money from someone else.”

Rencher said students often forget that they are “renting money,” and often buy 25 to 30 percent more with a credit card than they would if they had used cash for purchases.

”It’s easier to pull out a credit card and buy things that students wouldn’t normally have purchased,” Rencher said. “One of the ways to control spending is a constraint that doesn’t let a young person have a card unless he or she has a co-signer.”

Rencher said students can build up credit on a parent’s or co-signer’s credit card. This is one way to earn a high credit score. Lower scores will lead to increased interest rates, according to Rencher.

Junior Nick Brown, a business major, built his credit in high school by having his name on his parents’ credit card. He only used it for essential items such as gas and food. He now has two credit cards of his own.

“I’m using a credit card now, and I’m not overspending,” Brown said. “When I get out of college, I’ve set myself up so I will have a great credit score.”

Rencher said other students should follow Brown’s lead.

“The solution is to put expenses in categories,” Rencher said. “Many students hear the word ‘budget’ and they think of hard, boring, constricting work, but these are just generalizations.”

Most students do not realize that budgeting and good credit will allow them to have more opportunities in the future, he said.

“Good credit is important if you want to borrow money for a car or house, and credit scores can also impact potential employment,” Rencher said.

Senior Chris Porter, a finance major, has used his parents’ credit cards since he was young. Now, he wants his own credit card.

“When I graduate I want to build up credit so I can buy a house. Without good credit, I won’t be able to get a loan for a mortgage,”
Porter said.

Brown said college students should only apply for a credit card if they are going to “use it appropriately.”

“If you can control your spending, a credit card will give you the opportunity to have a great credit score,” Brown said. “On the other hand, you could destroy your credit score if you have a credit card and use it irresponsibly.”

Junior Andrew Yeboah made the mistake of using his credit card irresponsibly, and as a result, he racked up $15,000 in debt. He used his stock investments and paychecks from work to pay off the debt. He said credit card limits might alleviate this problem.

“College students don’t need more than $1,000 on their credit cards,” Yeboah said. “Make sure you don’t have a high limit, because a high limit will be tempting. I had a $20,000 limit on my credit card.”

Credit card limits are a better alternative than restricting every person under age 21 from attaining a credit card, according to Brown.

“Regulations on getting a credit card need to be tightened,” Brown said. “Credit companies have set limits based on credit scores. To take away the opportunity from those who responsibly use a credit card is unfair.”

Rencher and Brown suggest that students should be taught how to manage their finances. Brown even took a personal finance class at Liberty class last year.

“The personal finance class is a very insightful class¬–a class that should be required for most people at Liberty,” Brown said. “It tells you how to set up a budget, how to save for retirement and how to live debt-free.”

Brown emphasized the importance of owning a credit card, but he said credit cards are not for everyone.

“Only get a credit card if you have the funds and if you are able to pay it off. Don’t get a credit card if you’re not a responsible spender,” Brown said. “It’s super easy for your credit to fall. It’s more difficult to build it.”

Contact Melinda Zosh at mzosh@liberty.edu.


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