Spring Break
Credit cards can be beneficial if students use them responsibly
John Kim
Daily Staff Writer
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Shahneeyam Reza, a senior computer engineering major, said he applied for two credit cards while he was a sophomore and received a combined credit limit of $2,700 for the two cards.
"I maxed out both credit cards in a month and a half," he said. "I didn't make any payments for a few months and ended up getting calls from credit agencies. I had to go to court for one of them, and the bank eventually made me pay half of what I owed."
Reza said that he blamed inexperience and a lack of understanding for his troubles.
"I basically didn't know what I was doing or what would happen," Reza said. "My credit was destroyed for a while."
According to Lydia Ortega, the chair of the department of economics at San Jose State University, credit cards don't necessarily have to be a financial trap. She said as long as students understand what they're getting into, it's a chance to build an excellent credit rating.
"These students are getting accounts, and it's like somebody's giving them a chance to establish a history of great credit that will come back in infinite amounts in terms of qualifying for low rates for home loans, car loans," she said. "By taking on some credit debt and then making payments on time, you're building capital in a way that's different than the education capital you're getting from school, but it's just as important."
According to a study by the National Center for Education Statistics for the academic year 1999-2000, in the nation's four-year, doctorate-granting public universities, 45 percent of students carried one or more credit cards in their own name. Forty-two percent carried cards with balances due month-to-month, and the average balance owed on the cards was $2,921.
A report prepared by Nellie Mae, one of the nation's biggest education loan providers, revealed that students double their credit card debt and triple the number of credit cards they own by the time they're ready to graduate and that 31 percent of seniors maintain credit card balances between $3,000 and $7,000.
According to Nellie Mae, if a student with a $7,000 balance only makes the minimum payment each month (3 percent of the monthly balance, or $25 - whichever is higher) at an interest rate of 18.9 percent, and he or she didn't make any additional charges on the account, it would take more than 16 years and $7,173 in interest to pay off the balance.
Are student credit cards a way for lenders to prey on the young and uninformed? SJSU's Ortega believes it's not that simple.
"Credit card applications being distributed on campus is an opportunity for great reward or great sorrow in your life," Ortega said. "If students manage their accounts well and establish an excellent credit history, they're starting young enough that they'll have a credit history so that when they come out at 30 or 28 and they want to buy a house, they can."
Ortega said that student credit cards should be available to students, while she acknowledged the potential for harm.
"There are students who really need the credit, who can really benefit from the credit and who should have an easy opportunity for getting the credit, versus those who are going to abuse it," she continued. "We still don't know who's going to be an alcoholic and who's going to enjoy a glass of wine now and then - there's no way to tell - and yet bars sell wine and alcohol, and some people benefit from it and some people abuse it."
Tina Yap, a junior majoring in management information systems/business, said she has used her credit cards responsibly. Though she has six credit cards in her wallet, she said she carries a balance on just one, a student Visa credit card issued by Washington Mutual.
"I paid off all the other credit cards, and now I only use the one when I have to," she said. "I don't want to deal with debt after I graduate."
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