Inexperienced students are often faced with finance problems when they overuse their too-convenient credit cards, especially after the holidays.
Some students learn about maintaining their credit the hard way.
That’s because credit cards, which offer convenience and the ability to purchase large items, are too convenient for some people, said Jeanne Wagenknecht, a University finance instructor who teaches personal finance at the business school.
“They can make it possible for you to spend crazy, irrational, impulsive amounts of money,”
Wagenknecht said in a recent
e-mail explaining student issues
with credit.
A new tool available to Oregonians since December can help the more than 80 percent of students who carry credit cards understand and manage their credit history by providing access to free annual credit reports.
The free reports are part of a federal law, the Fair and Accurate Credit Transactions Act of 2003, which requires national credit bureaus Experian, Equifax and TransUnion to offer free annual reports to consumers. Credit reports previously cost about $30 to obtain.
Students double their average credit card debt and triple the number of credit cards in their wallets between the time they arrive at college and graduation, according to a 2001 survey by student loan company Nellie Mae.
With a record number of students carrying credit cards — 83 percent of undergraduates carried a credit card in 2001, compared with 59 percent in 1998, according to Nellie Mae — it’s important for them to be aware of their credit history, Wagenknecht said.
“If a student has a bad credit history and they find out about it, it will help them modify their own behavior and get on a better track,” Wagenknecht said. “The sooner this happens the better.”
Avoiding credit cards in general isn’t necessarily a good thing. Establishing a credit history is essential for people who might want to rent an apartment or buy a car in the future, Wagenknecht said. She
suggested students have at least two credit cards and use them wisely “to get a good credit history going and establish good habits with credit card use.”
Juggling credit and debt parallels managing classwork, Wagenknecht said. She said understanding a credit card agreement is like understanding a course syllabus and making credit card payments on time is like having good attendance. Credit cards are a problem when a student lacks maturity and an understanding of credit, but most students are mature and responsible, she said.
University senior Jamie Young said she has always handled her three credit cards responsibly, although she noted not all students are so accountable. She manages her debt by only using credit for larger expenses, such as holiday shopping and at the beginning of the school year. When tempted, she tries to be logical, she said.
“I may want to use it,” Young said, “But I don’t because I know I’m living off financial aid and can’t afford that.”
Students who do spend more than they can pay off and end up with bad credit may encounter some leniency from credit bureaus if they’re still young.
“If you were under 25 years of age, there is more room for creditors to understand that you were young and inexperienced and that you may mature and may be able to redeem yourself,” Wagenknecht said.
She said the Fair Credit Reporting Act offers some additional rights useful to students. The law gives people the right to review their credit history. If students are turned down for credit of any kind, they have the right to ask for a written explanation. If there is something in the credit history that is unfair, people have the right to give their side of the story in their credit
report, Wagenknecht said.
Checking on credit history can help catch some potentially damaging mistakes. One in four credit reports contains errors serious enough for a person to be denied credit, a loan or even a job, according to a 2004 survey by the National Association of State Public Interest Research Groups. About 79 percent of credit reports contain other mistakes, according to the survey.
Annual free credit reports can
be obtained at www.annualcreditreport.com. Wagenknecht said knowing one’s credit history is important, but staying free from debt should be a student’s ultimate goal.
“Being free from debt, all debt, is a wonderful place,” Wagenknecht said. “For most people over 25 years of age, it should be an aspiration that we all strive for. However, it is not an aspiration that is sold and marketed to us.”
