Credit most students don’t know about and abuse

Posted on December 4, 2011

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By Veronica Vela

Google the importance of a credit score, and more than 6 million answers will come up in seconds. Ask a college student, and you may not get a clear response.

“I don’t have a credit card, so I don’t know the importance of a credit score. I think it’s so you can buy important things like a house and a car,” said Ryan Hendel, a sophomore majoring in business management.

Credit cards, credit scores and debt. These are all words that college students hear often, but many are not sure of the importance, or dangers, of these terms.

Gizelle Perretti, an assistant professor of finance, worries many students underestimate the significance of having a good credit score.

“It’s your most important asset as a human,” she said.

Perretti explained that students think they will automatically have a good credit score if they do not have any loans or credit cards, but this is not the case. She said most banks and lenders want to see at least seven years of credit history.

“Students graduate from college thinking, ‘I’m going to get a job and buy a new home or car,’ but it’s not that easy,” Perretti said.

The CARD Act is the newest obstacle for students trying to build their credit.

The Credit Card Accountability, Responsibility, and Disclosure Act took effect in February 2010. The act was passed to make credit card companies more transparent and fair, but it is also making it harder for students younger than 21 to get a credit card.

Underage students applying for a card are now required to have a co-signer older than 21. Though these stipulations make the process more tedious, some agree that it will help show young consumers that good credit is something to be worked toward.

“That’s fair because so many kids under 21 use their credit card like it’s free money and don’t pay it back,” Hendel said.

Carrie Kerekes, an assistant professor of economics, wants students to know that credit may take time to build up, but can be damaged quickly, especially if credit cards are used irresponsibly.

“Having good credit is extremely important,” Kerekes said. “Credit scores can go down very quickly and it takes a significant amount of time to get it back up, especially if you max out your cards.”

Both Kerekes and Perretti agree that once a student loses control over their debt and credit cards, it can cost them more than they are prepared to pay.

“The best credit scores will save [students] money,” Perretti said. “If they have a bad one, it’s going to cost them.”

Her advice for students and credit card holders is to take advantage of the law and ask for help.

By law, each of the three big credit firms are required to offer consumers one free credit report each year by request. If the requests are spaced out between each of the three companies throughout the year, consumers may receive one every four months. She suggests that students also talk to their lenders and develop a payment plan.

“As soon as lenders see students are making an effort, they’ll work with you,” Perretti said.

Their final piece of advice to students is to be careful. If not watched carefully, credit scores can dip, and once late payments are made they can stay on credit reports for up to 10 years.

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Posted in: Veronica Vela