Student credit card use a growing concern

Posted on November 21, 2007
Filed Under Bankruptcy, Students Credit Cards | 1 Comment

A California law has reduced the number of credit card companies soliciting students every week.

Credit cards can be very useful to people who are traveling, experiencing temporary shortages of cash, or who are trying to build credit in order to purchase a car or a home.

But the dangers hidden in high interest rates and fees can be significant.

“I had a friend who declared bankruptcy shortly after college because of credit card debt,” said Larry Martin, senior coordinator of Cal State Fullerton New Student Orientations. “Her one credit card for emergencies quickly turned into thirteen.” Martin’s friend’s debt peaked at between $23,000 and $25,000. She ultimately declared bankruptcy. She also had student loans that she could not default on. Martin thinks she was about 23 when she declared bankruptcy.

Serena Cline, a coordinator for New Student Orientations, said she knew someone who used a credit card to pay for what she needed for college. Her debt went to $15,000 before she used her retirement fund to pay it down to a manageable amount.

Martin and Cline use these stories to warn new students at CSUF of how credit card debt can get out of control.

Across the nation, concern over the marketing of credit cards to students is growing. Fifteen states already ban or restrict credit card marketing to students on campus, according to The Associated Press.

The last national survey on students and credit cards was conducted by Nellie Mae, a student loan company, in 2004, according to an Associated Press article.The survey reported that 91 percent of students had credit cards by their final year in college, and that the average outstanding balance of all student credit cards was $2,169. More than half carried balances of less than $1,000.

Aggressive marketing of credit cards on the campus at Cal State Fullerton used to be commonplace several years ago, according to Associate Dean of Students Esiquio Uballe.

“Some time ago, the credit card companies were doing willy-nilly credit card marketing,” Uballe said.

Offering free gifts to students, such as a T-shirt, in exchange for filling out a credit card application, was a regular practice, he said.

The California Student Financial Responsibility Act of 2001 put an end to that.

A part of California’s education code, the law caused changes in the university policies regulating the marketing practices used by credit card companies while on campuses. Sites where credit cards are marketed on campus must be registered, and campuses were told to consider limiting the number of sites. Gifts in exchange for filling out credit card applications were prohibited. Education about credit cards and debt became a regular part of the campus orientation of new students.

The law made a big difference in how credit cards are marketed on the CSUF campus.

Before the law, Uballe said, five to 10 credit card companies and banks would request spaces for marketing credit cards in a week. In the last two years, that number has dwindled to about one a week.

Uballe credits the end of gift offers for the slowdown. He recalled the response of one credit card company to learning about the new rule.

The company told Uballe that “that’s how we get them to [fill out applications]. If we can’t get them to do that, then it’s not worth our time.” The company did not return to CSUF.

The legislation also called for credit and debt education to become a regular part of the campus orientation of new students. CSUF fulfills it’s obligation by giving a seminar that teaches about credit and debt during New Student Orientation.

During the optional part of the orientation, workshops are offered, including one in financial management, that is taught by Martin and Cline.

The Financial Management seminar topics are budget creation, education financing, and credit management. The workshop teaches that the way to establish credit is by starting a savings account and a checking account, paying bills, applying for secured loans, having a co-signer, and applying for a credit card. The things that impact credit scores, such as credit inquiries, delinquencies, and bankruptcies, are also discussed. Credit scores can be improved by paying off credit cards, keeping some credit cards open, making timely payments, opening new accounts slowly, and resolving past bad credit.

“We don’t want people to be scared of credit cards, but we do want them to be cautious,” Ryan Alcantara, associate dean of students, New Student Programs, said. “Making the minimum payment is never going to pay off your balance, and I don’t think all students understand that.”

Vice President for Student Affairs Robert Palmer also believes that students must be careful when acquiring credit cards.

“Unless it is absolutely necessary, I oppose students getting several credit cards,” he said. “They can get themselves in a lot of trouble pretty quick.”

Many CSUF students replied that they got their first credit cards from their banks for the sake of convenience.

“It was the bank my parents used, and I set up a student checking account in high school,” Alicia Haneiwich, 23, a theater arts major, said. “I just went in and asked for it.”

Giovanna Origel, 22, a child development major, has worked at building up her credit. She received many credit card offers in the mail, and chose the ones with the lowest interest rates. As her credit improved, she replaced the cards she had initially with ones that offered her better rates.

Origel purchased her motorcycle, a Kawasaki Ninja, using her credit. “It was more than I should have paid for it,” she said. She is still paying down the motorcycle, but is building up her credit as she does so.

Origel has advice for other students who want to establish credit.

“Choose wisely,” she said. “Try to keep a good record for the first two years on a credit card, because that’s when you’re building credit.”

Truth About Credit is a project of the U.S. PIRG Education Fund and the Student PIRG’s. At it’s website, http://truthaboutcredit.org/consumer-tips, it offered the following six tips to avoid getting stuck with deep credit card debt:

1. Shop Around. Look for an annual percentage rate of 15 percent or lower and no annual fees. Read the fine print to make sure they cannot impose penalty rates for being late paying to a different creditor or utility company, or change the terms of the contract at any time for any reason.

2. Use credit cards sparingly. If you can’t pay off the balance each month, then don’t use them for day-to-day purchases.

3. Pay off balances in full each month. If you can’t, then make the largest payment each month.

4. Make payments as early as possible every month.

5. Call your credit card company and ask for a lower rate. It is cheaper for a credit card company to keep you as a customer than to find a new one. In a recent U.S. PIRG study, over half of consumers who called lowered their rates by a third or more.

6. If you have problems paying, seek help. Talk to a credit card counseling service or a financial counselor.

By Karl Zynda

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