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College Credits: Visa Horror Stories 105Jan 05 '01 Write an essay on this topic.As a college student, there is never enough money. Despite your parents’ assurance that they lived on 15 cents a day (and walked uphill both ways in the snow, blah blah blah), it’s hard to be a student with no money in the college atmosphere. No matter how good 3 large pizzas for $9.99 sounds, it is still draining on limited resources. You are at school to study, but you want to LIVE, too! Then it happens. You are on your way to class/the game/your girlfriends/eat and they are offering a FREE T-shirt. In your money-hungry state, a T-shirt is to you what fire was to Tom Hanks in Castaway - a godsend. You sign up, knowing full well that you will never get an actual credit card – or better yet, maybe you will. Dreams of dorm room hot tubs, bar tabs, trips to sunny Minneapolis spring to your mind. You sign up, take your T-shirt (which will last about 4 washes, by the way) and head out, your application forgotten. Four weeks later, you receive a little piece of plastic with a logo of your school on it and the power to go out and wreak havoc. You use it sparsely at first: $5 here, $10 on pizza, that $15 lamp you needed. The next thing you know, you just don’t have the cash on you, so you whip it out to pay for everyone’s Chinese food. And that dress – ‘cause you really haven’t used the card, right? And then ... and then... A month later, you see the bill in your mail. No big deal, you should owe $100 or so. So, imagine your surprise when you were off by 1 zero – you owe over $1,000! How did you manage that?! And worse yet where are you going to get that money? Welcome to the world of college credit cards. It’s a sometimes ugly world, ugly like that face of yours the morning after you decided to see if you really COULD drink a case of bad beer by yourself. And it can be a dangerous world for those who aren’t prepared. Lucky for you, Uncle Marty is here to save the day – or at least give you that advice to avoid making some of the common mistakes surrounding credit cards. (Not that you kids will listen – you never listen to your elders <grumble, grumble>). There are a great many reasons why college students SHOULD get a credit card, but there are some cautions that should also be kept in mind when you get one. Failing to recognize the dangers can lead to some less than happy results. GOOD – Clean Slate Unless you have been fortunate enough to have bought your own car already, you most likely have little to no credit history. No, Columbia House Music Club does not count, nor does your band fund drive. So, essentially you have a clean slate. Therefore, you are eminently marketable to credit card companies, who are seeing the future of their business as they come closer to profitable careers – careers where they will spend money, preferably on their cards. Because of this niche that you occupy, the criteria for acceptance is much lower than if you were already out in the job market. Ironically, the moment you step outside of your graduation, credit becomes HARDER to get. Suddenly, a lack of a credit record is a detriment instead of a bonus. If for no other reason, this is a good reason to get a credit card. Because companies will take the chance on college students, it provides you a great opportunity to establish credit by using the card responsibly and developing a good payment history. BAD – Can Ruin That Record Quickly Unfortunately, because you have no previous history, any marks on your record will stand out that much more. Missing payments – particularly ones that go over the 5-day late period – are notorious as markers for rejection for further credit. When you get this first opportunity, it is essential to pay all of your bills on time. GOOD – Temporary Free Money As those who have learned the system know, credit cards can give you a free loan of a month or more. If you pay off your balance completely every month, you will not start paying interest until you have a balance at the end of a billing period, i.e. if you carry a balance. Once you carry ANY balance over from one statement to the next, you lose all grace periods for purchases. However, if you do pay it off, you can put off paying ANY interest and still have until the end of your next bill to pay. Here’s how it works: You buy a $25 sweatshirt on Day 1. Your purchase posts at ABC Bank (a credit card company) on Day 3. Your statement period runs, ending on Day 18. They send you your statement on Day 19. You receive your statement on Day 22. You don’t have to send a payment until Day 42. That’s a month and a half between your purchase and you having to pay for it. BAD – Interest Sucks But if you DON’T pay off your balance, the scenario becomes: You have a balance of $1.05 on Day 0. You buy a $25 sweatshirt on Day 1. Your purchase posts at ABC Bank (a credit card company) on Day 3. Interest starts compounding daily at 14.99% annually on Day 3. Your statement period runs, ending on Day 18. They send you your statement on Day 19. You receive your statement on Day 22. You don’t have to send a payment until Day 42. You pay, and they receive your payment on Day 41. In that period, you have had 41 days of interest compounding on your balance ($1.05 + $25 + increasing interest). In that time, you actually end up owing $0.42 in interest, too. It doesn’t sound like much, but if that balance was $1,000? Interest = $16.50. That’s just one month, folks. GOOD – Buyer Beware ... But Not As Much One of the other key reasons to have a credit card is that they afford some protection to you on your purchase. If it doesn’t work, or is broken or the merchant doesn’t do what they are supposed to, it is a lot easier to get your credit card company to step in than your bank. With a bank, the merchant HAS your money, and it can be a struggle to get it back. Credit card companies can very easily charge-back the merchant until it is resolved. GOOD - Emergencies If, unfortunately, something were to happen – on a road trip, for example – and you need emergency money, a credit card can be a life-saver, literally. Many towing services and repair shops will hold out-of-state checks for 5 days, if they accept them at all. That means you have to wait before they will release your car. Hotels will rarely take checks if you need emergency shelter. Credit cards will also get you cash at most banks if the company will only accept it (although you should be wary of any company that only accepts cash, and make sure to get a receipt). Keep in mind, however, that these services often have high fees attached – but if you are in a true emergency, that is the least of your problems. BAD – The Sky’s the Limit, Just Don’t Hang Yourself On The Way Up College students have a need for credit. However, most of them don’t need a LOT of credit. Unfortunately, credit cards companies don’t make money off of low balances, so limits are absurdly high. No student with alternate income (i.e. parents, loans or scholarships) should need more than $1,000 credit limit, but companies will routinely hand out $2,000-5,000 limits. GOOD – You Can Set Your Limit If you have a high limit, LOWER IT. Make sure to put in a request to hold your limit and have it noted that YOU requested it. Having a lower limit won’t hurt you, so long as it is noted to have been requested by you (when companies lower your limit, it is usually be for bad payment histories and WILL show up as a black mark). Plus, a lower limit means that in a fit of shopping panic, you won’t go and spend too much too quickly. Call it a safeguard, but it will help you in the long run. When you get out of school - assuming that you have been a good payer and not accumulated any detrimental credit elsewhere (yes, they all use the same sources to get info, so if you mess up one, they ALL will know about it) - you should be able to raise your limit quickly after you graduate, particularly if you have a job already. You can raise it as high as they’ll let you, and continued good payment history will get it higher still. CONCLUSION Credit cards aren’t bad things by and of themselves. However, in the hands of the inexperienced they can be a dangerous tool. It is absurdly easy to lose track of the amount of money you are spending when it isn’t coming directly out of your pocket. All too many students find out the hard way that credit cards are as unforgiving as Lot 80 on a blustery day (sorry, Penn State reference there...). If you can take responsibility for using them, this is THE best way to develop a good credit rating which will help you later with a car, a home, an apartment or even acquiring OTHER credit. You will have no easier way to get your start than in college – after you leave, you become another name without any background, and credit becomes exceedingly hard to come by. Get a credit card – but only one. Use it for that $10 or $20 purchase in place of the cash in your pocket. Put that money away for the end of the month. Pay off your balances. Use it responsibly. Or ignore me, and spend a bundle. And then learn what bankruptcy can do to a person just starting out. Believe me, it’s far worse than failing that Biology exam. You can retake that test – but credit takes 7 years to repair. And that’s just too long to have to continue living like a struggling college student.  |
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