|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
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I am a college student looking for a credit card. When I tell my
parents this they say, "no, you don't need one". I feel
that I am financially responsible and in control of my money. I am
not looking to spend money I don't have but merely to build credit.
I've read all about college kids in debt, etc. But what about the
rest of us that are responsible and ready to start our lives? How do
I even get a credit card? And is there any better way to build
David is smart to take an interest in
managing his credit. Like most young adults, David is anxious to
grow up. And getting your own credit card is part of that process.
But he needs to be careful when he begins this journey. There are
more than a few perils along the way.
First, he should consider why he
needs to 'build credit'. Sure, credit scores are being used for more
things these days. It's even possible that David's college checked
his score before accepting his application for enrollment. But
typically, the only time that you really need good credit is when
you want to borrow money.
In fact, he probably won't need to
have much of a credit history until he wants to finance a major
purchase like furniture, an auto or home. So there's probably no
hurry to 'build credit'.
That's not to say that David
shouldn't get off to a good start now. One advantage to getting a
credit card early is that David can begin to establish a consistent
history of responsible use of credit. Of course, the younger David
is, the more likely that he'll fall into trouble.
David needs to remember that having a
credit card does not necessarily help his credit rating. If he gets
a card with a low credit limit and pays his bill in full each month
he will begin to improve his credit score.
But, that same credit card could also
hurt his credit score. All he has to do is to begin to carry a
monthly balance. In fact, if he just has a credit limit that's too
high in relation to his income, he will be less attractive to future
Is there another way to build credit?
Not really. There are other things that go into his credit score.
But most of the information relates to how much credit is available
and how dependable the borrower has been. So information on credit
cards is a big portion of most young adults' credit rating.
Once a year David should get in the
habit of checking his credit report. There will be a small charge
unless he's been refused credit. The three major credit reporting
Equifax, PO Box 740241, Atlanta GA
Experian, PO Box 2002, Allen TX
Union, PO Box 1000, Chester PA
Getting a credit card shouldn't be
too hard. On most campuses credit card companies are aggressively
going after students. If he doesn't have a regular source of income
he may need his parents to co-sign on the account.
David should recognize that a credit
card is a dangerous tool. Less than 50% of all credit card accounts
held by students are paid off each month. It's very easy to charge a
few things during the month only to find that you don't have enough
money to pay the bill when it comes. According to Nellie Mae the
average college undergraduate carried a balance of over $2,700 in
2000. That's a lot of debt if you have limited income. If David
feels he can't use credit responsibly, he would be wise to wait.
When he does get a card, David should
leave it at home. The only time he needs it is when he has planned
to make a specific purchase and he knows that he has the money to
pay for it. Carrying the card with him is an invitation to make
impulse purchases. Very few students can resist that temptation for
In fact, he might do better with a
store credit card. The reason is simple. It's hard to buy pizza or
movie tickets on a Sears' card.
Given what's known about college
students and credit, David would be wise to move cautiously. He
needs to recognize that most students are not 'building credit'.
Instead they're damaging their credit worthiness and digging a
financial hole that will make it hard to rent apartments and buy
cars when they graduate. Hardly a smooth road to adulthood.