Students and the Credit Card Debt Trap
Students and the Credit Card Debt Trap
Credit card companies are courting students to apply for student credit cards. Acquiring a credit card is one financial decision that must be taken seriously and researched thoroughly. Part of due diligence is reading and understanding the terms and conditions applied to the credit card under consideration. The fine points in small print are rarely read by the seasoned applicant. Students are sure to miss it. Ignoring this information can lead to credit card debt.
Companies Count on Student Inexperience
Acquiring a student credit card is seen as a right of passage by students. A student credit card is not the ticket to free money. Although inexperienced, the responsible student will handle this efficiently by spending lightly and working within a budget. The bill gets paid upon its arrival and total credit card debt stays low or is non-existent.
On the other hand, the majority of inexperienced students have a tendency to fall into the credit card debt trap. Most of this target group will miss payments, incur late fees and apply for another card to get cash advances to pay down the debt on the initial card. Credit card companies count on student inexperience for company profits. Late fees, increased interest rates and annual fees can add up and multiply if not addressed properly.
Real World Credit Score
Credit card debt has a domino effect on future credit. Too much credit card debt matched against income will severely limit the chance of obtaining any future credit. The credit card debt is reported by the issuing company to credit reporting bureaus. These bureaus have a formula which scores your financial responsibility - or lack of it based on the monthly reports by credit issuing sources. Credit card debt will follow you around for years if payments are inconsistent.
There are three bureaus that exist solely to track and score financial responsibility and then report it to future lenders or debt recovery agencies. Those bureaus are Equifax, Experian and Trans Union. Each one has its own formula for scoring the information that they retrieve. Recently, a new agency called VantageSCORE has appeared on the scene with the intent of taking information from all three bureaus, score it and make realistic predictions of future risk based upon the past 24 months.
Information from the three bureaus are now forwarded to a central clearinghouse for analysis. Student credit card debt is one of the many forms of credit that will be analyzed and scored. The score range is 501-990. Fiscally responsible student will receive a higher score and those who have accumulated student credit card debt with erratic payments score much lower.
Student credit cards.com @ June 19, 2008