Prime targets
College students offer tempting audience for credit card companies

By HANK EZELL

Cox News Service

August 28, 2005

ATLANTA — This month, tens of thousands of first-year college students are signing up for their first credit card — maybe a pocketful of them.

Freshmen are prime targets for card issuers, largely because they are fresh meat and because people tend to remain loyal to their first cards for many years.

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Before they got to campus, our best and brightest were inundated with pre-approved credit card offers in the mail, and on most college campuses they found recruiters waiting for them with even more offers.

Result: Most young people get their first credit card in their first year on campus (43 percent) or even earlier (23 percent).

Last fall, three out of four college students had credit cards, and 43 percent had four or more cards, according to a study from student loan provider Nellie Mae.

Inevitable follow-up: Scores of freshmen charge more than they can pay, beginning their lives as distressed debtors long before they begin their working lives. The average balance that freshmen owed on their credit cards was $1,585, according to Nellie Mae. The debt level grows each year on campus.

All that may seem discouraging. But, as far as credit granters are concerned, college kids might as well have targets painted on their wallets.

There's the loyalty thing, and there's the Bank of Mom and Dad.

"I think there is an assumption that even if parents are not co-signing for cards, they are a fallback," said Nellie Mae's marketing chief, Marie T. O'Malley. "If little Joey doesn't come through with his payment, he's likely to ask his parents for the money."

New surveys show several signs of credit problems among undergraduates. Only one in five pay off all their credit card debts each month, according to Nellie Mae. Two-thirds carry over some of their debts from month to month, and 11 percent pay less than the minimum requirement.

A separate survey from Oppenheimer Funds found that more than half of students with credit cards have charged up to the limit on all their cards some or most of the time.

It doesn't have to be that bad. Indeed, a Nellie Mae survey in 2001 showed that more students had more credit cards and higher average debt levels.

What changed? Public awareness, according to O'Malley.

"Three years ago, I think the issue of undergraduate students and credit cards wasn't fully realized by people who were able to do something about it," she said. Since then, colleges, politicians and parents have gotten involved. She pointed out that 26 percent of students said in 2004 that they got help from their parents when they got their first credit cards.

For undergrads shopping for their first credit cards, here are some things to consider:

Always read the fine print. "Make sure you understand the interest rate and fees associated with the card," said O'Malley. "If there is a low introductory rate, at what point does it jump up and how much?" Shoppers should look for a low interest rate, no annual fees and a grace period of at least 25 days before a monthly payment is overdue.

Look for a low credit limit. A maximum of $500 is a good idea on a first credit card, said June Walbert, a certified financial planner with USAA's financial planning services unit. A young person with borrowing power is like a general with firepower — the more he has, the more he wants to use it.

Stick with one credit card. The main reason for getting more cards, other than egotism, is to increase borrowing power. The unfortunate truth, however, is that one is rarely enough. The average, among students who have them, is 4.09 credit cards. If you're already there, there are simple rules for practicing safe charging.

Make a plan. "The key to it is budget, budget, budget," said O'Malley. "Students don't want to do it, and maybe they don't understand. But before you start using credit cards, you have to sit down and evaluate what your expenses are and what income you can expect."

Be careful what you charge. About one in four students use credit cards to pay part of their tuition. You would get lower interest rates and much better repayment terms if you used student loans to pay that and other direct education expenses.

Don't miss payments. You could be forced to pay late penalties and see your interest rate jump to 25 percent or more.

Make it more difficult to charge. One way is to lock your credit cards in a secure place, rather than carrying them everywhere.

Think long-term. The credit industry keeps score and doesn't forget. If you can't pay your debts now, for pizzas and sweaters and whatever, you'll have much bigger problems when you graduate and need to buy high-dollar necessities.

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