Debt made easy with plastic
Signing up for what might first look like free money, students across the nation are a prime target for credit card companies.
In 1999 alone, 100,000 people younger than 25 years old filed for bankruptcy in the United States. Companies are enticing students with low interest rates and promotions, convincing them that now is the best time to gain credit, regardless of when now is.
Alena Johnson, lecturer in the family consumer and human development department at Utah State University and accredited financial counselor, said there is no prime time to get a credit card.
“I think that’s one of their new marketing techniques,” Johnson said. “They’ve kind of run out of people to get credit cards and students are one of the best sources.”
Johnson said students are prime targets because a lot of them don’t already have credit cards, and studies show that people keep their first credit card longer than subsequent ones.
Banks often entice students into applying for a credit card, saying they are providing a great opportunity for students to gain a credit history.
Johnson said establishing credit can be important, but says students can gain credit without trying. Many things students do each month such as paying rent on time, paying a cell phone bill in whole and making utility payments that build credit. It is not necessary to get a credit card, Johnson said.
Johnson said credit cards can be a good thing because they do allow people to build credit without going into debt if you pay off the entire balance each month.
“That takes discipline” Johnson said, “you have to be able to use it wisely to be able to do that.”
However, missing one payment, just once, can sometimes double interest rates.
Bret Hutchings, branch service manager of Zions Bank said, “[The banks] probably do target students more because they know they are in a financial pinch, so they try to help them by establishing credit and they make more money off students.”
“Credit cards aren’t a bad thing, unless you let them be,” he said.
Although, both Hutchings and Johnson said, the credit companies are not the ones to blame for the excessive debt piling up among college students. However, credit card companies do use marketing techniques that target students.
In the last three years, there have been a wide range of legislative proposals, in at least 18 states, to either regulate or study the regulation of credit cards for those under 21. Most often, these proposals are trying to limit the access of credit card companies to college campuses.
The proposed Bankruptcy Reform Act of 1999 prohibits a credit card company from giving any individual under the age of 21 a credit card unless they have an income, “sufficient to repay the debt or a parent, guardian or other family member over the age of 21 shares liability for the credit card.” It also requires that credit card applications and companies must tell this information to potential consumers.
This amendment came into discussion during debates on the bankruptcy reform legislation. Although credit card debt may not be the sole factor leading to bankruptcy, for many people, especially those under 25, it is a significant contributing factor.
The College Student Credit Card Protection Act, introduced in January of 2001, prohibits a creditor from providing a credit card account for student who “has no annual gross income and already has a credit card account under an open end consumer credit plan.” This act also prohibits raising the limit on any student credit card for which the student had a cosigner, unless the cosigner gives their approval
Although it does ask for employment information and gross income on the applications for the Zions Bank credit card, Hutchings said it is not absolutely necessary, the approval depends on the bank and it is possible to get approved without any employment or income.
Johnson said some companies will give people a credit card simply because they are a student.
On “60 Minutes II: Power of Plastic,” CBS sent an associate producer to the University of Oklahoma to pose as a student during a football game and apply for credit cards.
The creditors told him he did not need any income to apply for the credit card. CBS also discovered that First USA Bank paid the school $13 million to solicit a credit card with the school’s logo on it on campus to alumni, faculty and students.
“Credit card companies are the biggest user of fine print,” Hutchings said. “Everything is stated somewhere, it’s there.”
Many credit card applications will use disclosures such as, “full details will be provided when you become a card member,” or “complete reward program terms and conditions will be provided when you become a card member,” both of which are currently printed in the disclosure for a popular national credit card.
Johnson said the biggest mistake students make is when they don’t think about the end result. She said there are a few things students should ask themselves before they get a student loan or a credit card:
* What kind of career will I have?
* What kind of money will I make?
* What does the job market look like?
Answering these questions will help students plan how much credit they can afford to have during school. Johnson says a lot of students get credit cards when they go to school with no intention of getting a job after graduation, which makes it much harder to pay off the credit they built up through school.
Hutchings and Johnson both said debt is not inevitable during college, but the trick is being smart by paying it off each month and considering the end result before getting started.
The Family Life Center, located at the base of Old Main Hill, is open to anyone in the community for free financial counseling by appointment.
-etippetts@cc.usu.edu