Should College Students Start Using Credit?

college_credit_cardWhen I bought my first real estate property in 2010, I had excellent credit.  My score was over 760, but my mortgage broker told me they couldn’t give me the best rate because my credit history was too short.  At the time, I was 23, and the only credit card I owned was one that my mom co-signed for me so I could buy the essentials during college.  I was only allowed to use the card for gas, groceries and bars that sounded like grocery stores ;)  Since then, I’ve amassed an impressive collection of credit cards and my credit history is getting longer.

I think it’s a vital step to financial independence for college students to get their own credit card.  If I’m an 18 year old kid and I have my parent co-sign for a credit card, they are on the hook for the balance if I can’t pay, not me.  In fact, a co-signed card will do nothing to help build the applicant’s credit.  Instead, students should opt for a student credit card to help build their credit.  In my real estate situation, if I would have established a line of credit when I turned 18 or 19, I would have had a credit history of 5 years when I first applied for a loan and probably gotten the best rate.  Not only will establishing credit at an early age save you money but it also teaches students life long lessons of financial responsibility.

Don’t Baby Adults 

In the eyes of the law, when children turn 18 they become adults.  Often, they go off to college where they can vote, smoke and drink(illegally, but yes under-age drinking is prevalent in college).  Why shouldn’t they be allowed to open a credit card and start spending?  There are plenty of adults who rack up loads of credit card debt and treat their cards like a piggy bank.  I still can’t fathom why anyone would ever spend more money on their card than they have in their bank account, but obviously some people don’t see the connection.

There are tons of stupid people in this world, and I don’t feel the need to baby them and tell them what they can and can’t do.  Student cards generally come with a $500 or $1,000 limit.  The second you get a full-time job, credit card companies are chomping at the bit to offer you 10-20k lines of credit.  I don’t think much harm can come out of a credit card with a $500 limit, but you can do some real irreparable damage with a $20,000 limit.

Don’t Trust Credit Card Companies

Although I think adults should be able to make their own financial decisions, credit card companies are not helping the situation.  These companies often send representatives to college campuses to search for unsuspecting victims.  There’s no mention of what the interest rate will be if you don’t pay, what a credit inquiry is, etc.  I think that first time credit card holders should have to take a simple two hour course that would explain everything about your credit and how credit works.  If you have to pass a test to drive a car, why not to get a credit card?

The government has made some minor changes to help consumers, but there is still nothing for first time users.  Although student loan debt may be a bigger problem at this point, I hope the government imposes some restrictions in the future on first time credit card use.  Until then, parents need to do their best to educate themselves and their children.

Credit cards can be a great tool if used wisely.  I have been using credit cards and reaping the rewards for over 5 years now and I have never paid one cent in interest.  Because of my solid credit history, I’m able to constantly take advantage of awesome credit card sign-up bonuses and still maintain my high credit score.  Students should not be shielded from credit because it will be important to them for the rest of their lives.  I don’t ever expect the credit card companies to educate their consumers because it’s not in their best interest.  Until government agencies intervene, it’s up to credit card holders and their families to educate them about the proper uses of credit.

It is more challenging than most people realize for those who have just completed grad school, such as an online mat program, to avoid significant debt.  Do you think students should be allowed to use a credit card?  When did you get your first credit card?

-Harry @ PF Pro

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Hi, I'm Harry, the owner and head writer for Your PF Pro. I started this site back in 2011 in order to create a place where young professionals could come and get all of their financial questions answered. On the site, you'll find articles on everything from asset allocation for retirement to saving money at Chipotle! So enjoy..

Comments

  1. Roberto S. Matthews says

    I’m sorry, but I think that starting off in debt is the worst way to go. Many parents who are in debt themselves, are slow if not completely paralyzed when it comes to educating their sons and daughters about credit. As a matter of fact, banks are capable of extending credit — even on large items — without having to rely on the FICO score. That’s how I bought my first car and my house.

    Now if you feel you really NEED a good credit history, then why not try borrowing money that has an expiration? Like buying furniture on credit, or appliances? You can have a good history of 3 to 5 years (give or take) and know that eventually that sofa will have to be paid off. Instead of carrying a balance for 15 or 20 years because you just love to pay simply the minimum balance on a card.

    • says

      Hi Roberto, good to see you back :) I am not by any means recommending carrying a balance! I have never carried a balance as I said and it is a big myth that you need to carry a balance to build credit. Credit can be a great tool to help you if you use it wisely.

      Regarding the FICO score, rules used to be fast and loose on extending credit, I do not think this is the case anymore. Banks are much stricter on lending criteria and I would be very surprised if they would let you buy a house without relying on the FICO score. But with that being said, the only thing I really recommend using credit for is to buy a house. Personally, I would not go into debt for anything other than real estate.

      • Roberto S. Matthews says

        Yeah, I will say that you and I are exceptions. You are because I think that the discipline it takes to not carry a balance over is hard to come by. My situation is rare from what I hear. Especially since I bought my house after I had a charge off on my credit history. I was able to buy my house after Hurricane Katrina here in a town outside of New Orleans because I was at the right bank at the right time. I had a 10 year relationship with my bank and new all the “important” bankers by name. (I opened my first account with $60 when I was 18.)

        In other words, the seller was eager to skip town and my bank didn’t want to upset such a valuable customer. So, I’m sure you’d agree…”knowledge is power” and I think young college students should invest their efforts on educating themselves on how money works, how credit works, and on how to find deals in the system.

  2. says

    I have a student line of credit that I have never touched but renew every year for a $10,000 increase in the limit. And I now have two rewards credit cards. One I got at my bank as a student card and the second offers 3% cash back on gas and groceries, 1% on everything else and no annual fee. I haven’t paid any interest and I believe I have very good credit since that second credit card requires a good rating to be accepted. I plan to have an immaculate rating when it comes time for me to be approved for a mortgage, I am gunning for the best rating.

    • says

      That’s a great start! Establishing a line of credit that early is important for the reasons I mentioned above. Some people don’t have the discipline to use credit, but if you do, you might as well take advantage of the cash back rewards(for purchases you’re going to make anyways!) and the sign-up bonuses. I just signed up for a B of A Visa card that will give me $400 Cashback after spending $500 in 3 months and gives 1% CB on regular purchases, 2% on groceries and 3% on gas! I love credit cards. :)

        • says

          I think that almost as many 30 or 40 year olds are this irresponsible with credit too. Credit cards just make it too easy to borrow money for some people. It’s kind of human nature to want things now as opposed to later right? Google: Stanford Marshmallow Experiment :)

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