Credit cards create responsibility

Keely Shannon, Editor-In-Cheif
November 4, 2011
Filed under Features

Some college students see credit cards as pocket-sized gateways to unlimited shopping and inappropriate spending. Others see them as tickets to responsibility and the key to establishing good credit before graduation.

No matter how students use credit cards, it’s apparent they are. Eighty-four percent of undergraduates had at least one card in 2008, up eight percent from 2004, according to a study conducted by

Sallie Mae. Sallie Mae is the nation’s leading provider of loan programs and conducts studies every four years examining how undergraduates use credit cards.

Patrick Franke, Edward Jones financial adviser in Des Moines, said there is room for one credit card in most students’ lives, only if they establish a plan beforehand and are mature enough to pay the bill in full. Before obtaining a credit card, he recommends establishing a cash reserve, whether it’s a checking or savings account, which has the same amount in it as the credit line allotted.

“Debt is a poor place to draw money that you need because you pay more for that purchase, with interest, than what the original purchase cost,” Franke said. “It’s nice to be able to use somebody else’s money, but when they’re using your money for the interest then it starts to hurt.”

The average national credit card debt for seniors in college was $4,100 in 2008, with one-fifth of seniors graduating with credit card balances greater than $7,000, according to the Sallie Mae study.

Mitch Johnson, liberal arts senior, used a credit card for three years. He said keeping it was “dangerous,” so he recently took scissors to his Visa Card after spending got out of control. Johnson said he is now debt-free and never dug himself into bad credit.

“They were too expensive and too hard to pay off,” Johnson said. “I got a credit card so that I could just put gas on it, but then I started charging other things and I just decided it wasn’t a good idea.”

Despite potential for debt, it’s beneficial to establish good credit with a credit card company at a young age, Franke said.  Keeping a credit card on hand for emergencies, even if only used a couple times a year, will establish a credit score. Students will also acquire credit when they live off campus and put utilities in their names.

A good credit score can save a person thousands of dollars in interest costs, according to Sallie Mae’s online loan counseling. An individual with a high credit score will receive lower interest rates when borrowing money because it shows they are financially responsible and less likely to default on loans.

Bad credit may result in loan rejections and an inability to rent an apartment or sign up for utilities. Employers may also check credit score to judge a candidate’s level of responsibility, according to Sallie Mae’s website.

In some cases, having no credit can be as much of a problem as having bad credit. Without an assessment of an individual’s borrowing behavior, lenders may be hesitant to approve a loan, according to Sallie Mae.

To stay out of debt and remain ready for emergencies, Franke suggests setting aside a minimum of three months of expenses.

“With most people I see, they are running their budget too close. They are not establishing a cash cushion,” Franke said. “And if something unexpected comes up, a major emergency or something unplanned where they need a larger source of cash, they don’t have the backup for that.”