Why Do Credit Companies Prospect College Students?

Uncategorized, credit

If you are a college student, you probably already have a credit card. If not, you may have plans to get one or more soon. So why should you read on?

- Because financial debt is one of the main reasons that many students end up dropping out of college.
- Because your college years can be some of your most memorable—and some of your most costly. They do not, however, have to be the beginning of an adult life strapped with debt.
- Although you may still feel in limbo between your teen years and adulthood, it is time to take charge of your finances and manage them as an adult. The sooner you do, the sooner you will be able to start saving and spending your own money.

For those new to credit cards and for others who know all about credit, let us go back to the basics.

Why do credit card companies prospect college students?

It is obvious by the friendly representatives who offer a free t-shirt or CD just for signing up in the student center. On the other hand, the applications slipped into bookstore bags. Or mailboxes crowded with card offers. Credit card companies want college students to carry their card.

Did you ever stop to wonder why? One reason is loyalty—once a person has a card in their wallet, they are likely to keep that particular card and its upgrades for years to come. Another reason: college students are good customers.

While this may seem ironic considering that most college students are without a steady source of income, this is one example of how the credit card industry has changed radically in the past decade or so. Previously, conservative rules deemed a good customer as one that paid their bills on time, now; a good customer is one that cannot repay their debt.

Credit is no longer an earned privilege. It is now considered a social entitlement, and the screening criteria (for card applicants) is weak.

Banks make money by charging annual fees, late payment penalties and interest fees on unpaid credit card balances. Therefore, cardholders with revolving debt are desirable. For example, a student with a credit card balance of $7,000 at an interest rate of 18.9%. This student faithfully makes the minimum monthly payment of 3% or $25 – whichever is higher, and does not charge anything else to the account; it will take more than 16 years and $7,173 in interest fees to repay the bill!

How to make credit work for you, not against you.

Did you know that about 81% of college freshman have at least one credit card. Credit cards enable online purchases—from textbooks to concert tickets making it possible to rent a car, and help with medical emergencies or vehicle breakdowns. Used wisely, credit cards can be helpful throughout college, and can assist you in the development of financial management skills.

As soon as you get your first time credit cards or loan, you have entered the world of credit reports and scores. A credit report is compiled by credit bureaus and contains information about your identity and credit relationships, among other things. Credit scoring is a system that lenders use to help determine your ‘credit worthiness.’ Credit scores are based upon your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts.

It is critical to know that your credit score affects your ability to get loans, car loans, and home mortgages. Future jobs and insurance premiums can also be influenced by your credit report. By paying your bills in full or in a timely manner, a credit card will help you establish a good credit score. Late payment or no payment will help you earn a poor credit score.

Student credit cards.com @ May 13, 2008