The ease of student credit cards has led many a student into debt they were woefully unprepared to deal with. Over recent years this has been facilitated by the lure of credit cards promoted on campus with free giveaways. Credit card providers often worked in collusion with the colleges which received a commission payment from the card companies. Changes were introduced in the credit card reform act of 2010 which put an end to the easy availability of student credit cards, meaning students now have the chance to become more informed before taking the plunge.
A large proportion of students who enter college have little financial education or experience, and are already committing to large debts in the form of student loans. Credit cards represent another form of debt as unless they are used wisely can allow a student’s finances to run out of control.
The major benefit of student’s acquiring credit cards is to establish a solid credit reputation and hence an all important credit score. However if credit cards are used unwisely the loss of credit reputation is far more damaging and can take much longer to restore than lose. A graduate with no credit record is better placed than a graduate with a blemished credit record.
In order to for today’s students to obtain an unsecured credit card they must either have proof of income or a co-signer. Obviously there are still some card providers that skirt by the rules and allow credit to those whose incomes are not realistically high enough to support out of control credit card spending.
Credit cards are best placed in the hands of students who have already established work experience and have dealt with finances through handling a bank account and perhaps a secured credit card. Students who have no prior experience of dealing with finances are best advised to steer clear of credit cards until they have come to grips with budgeting and coping with student loans.
An alternative option for those who feel the need for credit in case of an emergency situation is to become a named card holder on a parent’s card. Providing rules are established regarding usage of the card this provides a measure of security whilst helping to establish a credit rating. Whilst this method can still cause problems to the credit rating of the named card holder it is a better risk than holding a personal card co-signed by a third party, as the former is easier for the card holder to cancel.
Those who opt for co-signed credit cards should fully understand that the guarantor is equally liable for any debts incurred on the card, and their credit rating can suffer from the student’s mismanagement of credit.
If credit cards are chosen as an additional way of financing student living they should be handled carefully and used only in a responsible manner which will result in the establishment of a credit rating. This means using them sparingly, never maxing them out, and always clearing the balance in full in a timely way. Ideally those who are as yet unused to dealing with finances should start college without them until they are confident they have their student finances under control.