Student Credit Cards
Student credit cards are those targeted especially for young adults in high school or college, who make attractive consumers for a number of reasons. Students are typically young and not yet loyal to a particular bank or financial institution, USA Today explains. They can also be excited to receive their first credit card and not yet experienced balancing a budget, building up a debt that can benefit the credit card companies.
Not all students who use credit cards are irresponsible with them, although USA Today reported the average debt a student carries weighs in at $2,000 or more. Undergraduate students owed an average of $2,169 on their credit cards in 2004, according to Nellie Mae, while graduate students owed an average of $8,612 in 2006. At least 50% of students charge books and at least 30% use credit cards to pay their tuition.
How are students targeted?
Gimmicks are big for student credit cards, USA Today says. The gimmicks can be something as simple as free pizza or T-shirts for filling out a credit card application at information booths and tables on and around campus. As credit card competition grows fiercer, the gifts can become increasingly elaborate and more enticing just to get a student to sign up for a credit card.
Credit card companies and banks often enter into agreements with the schools, alumni or athletic associations, USA Today notes, issuing credit cards bearing the school’s name or logo and profiting the school with a percentage of the annual fees. Such an agreement can also mean the financial institution has access to student information as well as prime real estate at campus events where they can set up booths or hand out information to promote their credit cards.
Direct mail, email, and phone calls are other marketing tactics credit card companies use to contact and promote their cards to students. While this can mean that the school has reviewed and approved the card, it also means students may scurry into an agreement with the first card offer they see without researching better options from other credit card companies.
What makes students eligible for a credit card?
Student credit cards can be a bit more lenient on eligibility than regular credit cards. The companies know that most students do not have a lengthy credit history, if they have any at all, and fewer assets than more financially established clients. The Indiana Department of Financial Institutions does note that students must be at least 18 years old and have some type of income, even if it’s from a part-time job. Students may also have the option of having their parents co-sign the credit card agreement, which means the parents become responsible for the monthly bills if the student fails to pay it off in a timely manner.
Another option banks may offer is a secured student credit card, which means students must open a special savings account at the bank issuing the card and deposit an amount equal to the amount of credit. This ensures any debt can be paid off by the existing savings account if the student fails to make the payments.
What should students know before they take the free pizza and sign on the dotted line?
Reviewing the fine print of the student credit card agreement before signing is a must. Student credit cards may be lenient when it comes to requiring a solid credit history, but they can make up for this leniency with high interest rates or other costly fees and terms.
Interest rates are a major factor to watch out for, especially if students are offered a very low introductory rate to lure them in, such as zero percent interest for six months. After six months, however, that zero percent can soar to great heights. Students should always make sure they are aware of what they are getting into for the long haul.
Student credit card fees are another caveat, and there can be a number of them. Annual fees are those imposed for simply having the credit card even if the student never uses it. Other fees noted by the Indiana Department of Financial Institutions include transaction fees, which can be imposed for paying the bill late or taking out cash advances, fees for going over the credit limit, and even monthly fees incurred if students do not use the credit card at all.
Setting up a budget is another good idea suggested by the Indiana Department of Financial Institutions, as is being responsible with the card. A budget should balance incoming funds from work, scholarships, or other monies against expenses. Being responsible with a student credit card means ensuring there are enough incoming funds to pay off the bill every month, but it also means being careful with the credit card and related information.
Keeping the credit card in a safe place helps avoid theft, as does not freely giving out the credit card number to even closest friends. Paying credit card bills or doing other financial transactions can be risky on a community computer, and individual computers should be safeguarded with a password and other anti-hacking protections.
Students can also benefit by establishing a number of credit card using habits. Reviewing each receipt before signing it at the time of the transaction is a good idea, as it retaining the receipts to compare them against the monthly credit card bill when it arrives. Lost or stolen cards should be reported immediately to the credit card company so they can shut down the card before charges are made for which the student could be responsible.