By Spencer Morris
Credit cards, an increasingly essential component of modern living, have become a spending outlet for not only the stereotypical college student but also companies who are targeting this age bracket. Not every credit card user knows the terms and limitations to having that small piece of plastic.
According to a 2001 study conducted by Nellie Mae, 82 percent of American college students have at least one credit card, a 24 percent increase from a similar study conducted in 1998.
“Most of my friends have credit cards because they’re so important these days, and it’s pretty much necessary to get one after you get out on your own,” said Soley Mason, a freshman pharmacy major.
Credit cards have risen to an almost iconic status in the financial realm, becoming more of a necessity than a luxury in purchasing and borrowing.
Credit has become so integral to basic financing that some tasks are nearly impossible to accomplish without the use of a card.
“You need one most of the time for basic things like getting a hotel room or even if you don’t have enough cash on hand,” said Kristen Pelletier, a middler nursing major.
Typically, a college student’s first form of credit is a signature credit card. Fifty-eight percent of college students report seeing on-campus credit vendors (Northeastern included) who often offer incentives to sign up, such as free T-shirts or prizes.
Pelletier, like many college students, said she did not review the conditions of her Visa Card before agreeing to them.
“I didn’t look into the terms too much. I kind of just trusted my dad with it,” she said.
Skipping over the “fine print” on the credit card contracts has left students to wonder how they get stuck with a certain fee or penalty. The reasoning behind doing so is simple: it takes too much time, the print is too small and the wording is awkward.
“They make it too hard to really understand the terms,” said Julian Smith, a freshman political science major.
The information, along with getting a credit card, may seem overwhelming, but credit cards revolve around fairly simple concepts that, once understood, can usually be manipulated to the student’s advantage.
The annual percentage rate (APR) of a given card defines the interest accrued on every unpaid balance. If a client credits $400, for example, and pays all but $100 of it with an APR of 10 percent, then the borrower is required to pay an extra $10 the next month in addition to the unpaid $100. APR is typically quite high with student cards, as credit companies profit immensely from college kids who borrow money and don’t pay their balances in full. One attribute of APRs are that they often change. Students are offered introductory zero percent APRs, which usually climb to double digit rates a few months after the student becomes comfortable using his or her card.
The grace period of a card is the time in which no interest accrues. The average grace period for current credit cards is 23 days.
Also, hidden fees exist for using the card in a variety of ways. For example, cash advances usually cost the student an additional fee – either a set figure or a percentage of the amount advanced. Late payments constitute fees, in addition to the possibility of receiving a negative addendum to one’s credit report. The best way to identify these key conditions is to slowly read through them and highlight the relevant numbers, according to Nellie Mae.
Unpaid balances are natural when using credit cards, be it because of a forgotten statement, a late payment or an inability to pay in full.
“Everyone is going to eventually run into that one bill they can’t pay,” Mason said.
Indeed, according to the Nellie Mae study, only 52 percent of undergraduate college students pay their entire credit bills each month, the reasons for which are typically that students sometimes are jobless or don’t make enough to compensate for their financial needs or that they overspend. And though credit companies are quick to stick collegians with outrageous APRs and restrictive conditions, they are typically forgiving of first-time mistakes.
“I was always taught that if you make a mistake, like making a late payment, they’ll try to help you out and give you some slack as long as you communicate with them and explain what happened,” Mason said.
In addition to the potential booby traps tucked between confusing wording agreements, the possession of plastic carries risks completely ignored by credit card companies. Identity theft, the ugly words credit companies try to avoid uttering, is a real hazard, one that can be an even bigger problem then hidden fees and high interest.
Identity theft occurs every day when credit cards are stolen and wrongly used by others. Because stores are becoming more relaxed on confirming the identity of a credit holder, the process has become an easy way to steal.
“Credit fraud is extremely easy. I’ve used my mother’s credit (card) and they don’t even check to see who is signing,” Mason said. “It’s a big risk you take when you own one these days.
Perhaps the most pressing danger coupled with credit usage is the credit sinkhole. Because credit is a means of paying things off without possession of any money, a disturbing amount of college students find themselves in a spiral of ever-increasing debt.
Overspending, impulse buying and late payments comprise just a fraction of the danger.
The most severe element is that of need. Because some people have no means of paying bills, buying food or providing shelter, their only method of doing so is through credit. And in an economy facing layoffs and unemployment, the process of signing one’s life away has become as trivial as making a signature on the dotted line of a receipt.
“Some people have no way out. Their only way to pay for something is by putting down a credit card,” Smith said.
Credit sinkholes are the creation of paying off debt with credit. Because credit cards often grant expansive limits and require minor payments, they are often the only means of paying off a car debt or even debt from another card. The result is an ever-expanding horizon of financial obligation. In fact, the average credit card debt of college seniors is more than $4,000.
“The real dangerous issues only come up when someone is being irresponsible with their credit,” Smith said. “If you have a job to pay it off, know your conditions, make your payments and just make sure you haven’t lost it, then you should be okay and you can use your card without fear.”
