The Debate of Using Credit Cards in College

by Kevin on August 30, 2010

College is kicking off this month at academic institutions across the country. Seniors are gloating their off-campus apartments. Juniors press on toward graduation. Sophomores are glad to have it all figured out. And Freshmen walk around campus attempting to look like they have it together while truly feeling dazed and confused.

And somewhere, usually in a large ballroom area, the bankers lay in wait.

A [Cheap Marketing Material Knicknack] for your Financial Loyalty

You know what I’m talking about. Banks line up with t-shirts, pens, koozies, mouse pads… you name it. Cheap marketing materials with their logo all over it.

These free things are for you! Honest! We like you so much we’ll give you a t-shirt and a book light!

Of course we do need you to sign up for our amazing, no interest for the first 60 seconds, 19.99% interest rate credit card to get this expensive marketing shwag.

The Risks of Using Credit Cards in College

A lot of financial damage has been done by inexperienced college students and their first credit cards. When you hand someone with no training a danger tool you can’t really be surprised when that same person ends up losing a finger.

Our society does so little to train the next generation on the tricks and trade of the financial industry that it really isn’t shocking that college students fall for credit card traps. The banks have a perfect market on college campuses: inexperienced clients with little free cash that want to impress as many strangers as possible.

The allure of this free money can be extraordinarily costly. Let’s say a college freshman signs up for a 19.99% credit card on his first day on campus. He decides to outfit his room and puts $5,000 on the card. He also decides to just pay the minimum until he pays off the charge.

That $5,000 charge will cost him $100 per month for 49 years and cost him $21,107. A costly financial lesson.

Our freshman wouldn’t be alone, unfortunately. A recent study by Sallie Mae showed 30% of students put tuition on a credit card, and only 17% paid off their cards in full every month.

The Benefit of Using Credit Cards in College

However, it’s not all bad news.

Let’s say our college freshman has been taught how to use credit wisely. He understands a budget. He knows he can only make so much pulling in minimum wage with his on campus job.

He, too, signs up for a credit card, but he doesn’t immediately blow his credit line on outfitting his dorm.

Instead he uses the card when he has money budgeted to spend, and pays off the balance every month. He continues this use throughout his college career and graduates not only with a high grade point average, but also a gleaming credit score.

That credit score will literally save him thousands of dollars throughout his adult life… if he can maintain that same financial discipline.


Car loans, home loans, credit card, even his private student loans for graduate school… all will allow him to borrow money at much lower rates with his high credit score than if he had made poor financial decisions with that collegiate card.

What Should The Freshman Do?

Should the freshman sign up? Hold the phone — even if the college freshman wanted to sign up for a new credit card he wouldn’t be allowed to. The CARD Act prohibits people under the age of 21 for signing up for a credit card. That is, of course, unless they have a cosigner. That cosigner could be a parent, legal guardian, spouse, etc.

Is this a good thing? Possibly. But how many parents also have poor financial habits? How many parents will shrug and sign the papers without looking at the interest rate?

There is no blanket statement that can apply here. Some 18 year old college students can handle a credit card just fine. They’ve been taught the benefits and risks. (I was one of those students.)

Others shouldn’t even walk into the banker’s ballroom. The risk is far too great for them.

For each, personal introspection of their own habits and impulses should guide them.


Forest August 31, 2010 at 2:46 am

I think it’s a bad idea in general to have the temptation of credit during college and I hate the CC companies for their aggressive on campus pushing.

If a student really could refrain from splashing out then of course it could work out good but we know this often isn’t the case.

Kevin September 5, 2010 at 10:46 am

It’s a tricky trade off. If you can be disciplined you’ll leave college with a decent credit score and some credit history making future credit issues much easier to deal with.

If you bomb on discipline, then yea, it’s a terrible idea.

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