Students’ Credit Card Build-Up on the Rise

May 10, 2010 by · Comments Off 

By Jackson Butt
jbutt@smu.edu

The average credit card debt for college students is rising steadily, aided by aggressive marketing tactics of credit card companies. Lawmakers have taken notice and passed a federal law, part of which intends to keep young people out of credit card debt.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 went into effect on February 22.

To college students, the most important part of the Credit CARD Act is that a minimum age of 21 is required to apply for a credit card; those who are under 21 have to find a co-signer who is over 21.

The Credit CARD Act also restricts how credit card companies advertise to students.

Before the act went into effect, it was common for companies to offer gifts, such as gift cards or T-shirts, for filling out an application. If companies still want to give out gifts to applicants, they must do it 1,000 ft. away from campuses. Companies are also not allowed to send prescreened credit offers to people who are under 21.

“I think it’s a good thing,” said Max Needham, a financial advisor at Ackley Financial Group. “It will help with some of the problem of younger people getting into debt early because their parents will get involved.”

These rules make it much harder for someone under 21 to get a credit card, the reasoning being to keep delinquency rates down and promote more responsible credit card use. However, the Credit CARD Act does not protect young people from their own decisions.

“It all comes down to individual responsibility,” Needham said. “There is a fine line between using responsibly and getting caught up carrying a balance for years.”

According to a study by student loan managing company Sallie Mae, in 84 percent of college students owned at least one card in 2008 and the average credit card debt for college students was $3,173. This number is up from $2,169 in 2004. Coupled with that debt is the annual percentage rate for students, averaged at 16.24 percent, which can lead to problems if payments aren’t met.

“I wish I had a lower rate. It seems like they keep raising it on younger people,” said Dan Hicks, 24, a student at the University of Arkansas, who struggled early on with managing two credit cards that he got when he was 18.

“They’re all paid off now, but I went delinquent on one card because I didn’t have enough money for a minimum payment,” Hicks said. “I didn’t have a clue how credit cards worked. The one thing I would tell people would be to always pay the minimum.”

Using a credit card responsibly is a large part of building good credit and some students are on the right track.

“I owe money on my card, but my parents help pay it to build my credit,” said SMU senior Jamie Siegle. “I’m not reckless and I know the consequences.”